Transpo Cases 2.1-3

[G.R. No. L-58897. December 3, 1987.]

LUZON STEVEDORING CORPORATION, petitioner, vs. COURT OF APPEALS, HIJOS DE F. ESCANO, INC., and DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES, respondents.

D E C I S I O N

GANCAYCO, J p:

On May 30, 1968 at past 6:00 in the morning a maritime collision occurred within the vicinity of the entrance to the North Harbor, Manila between the tanker LSCO "Cavite" owned by Luzon Stevedoring Corporation and MV "Fernando Escano" a passenger ship owned by Hijos de F. Escano, Inc. as a result of which said passenger ship sunk. An action in admiralty was filed by Hijos de F. Escano, Inc. and Domestic Insurance Company of the Philippines against the Luzon Stevedoring Company (LSC) in the Court of First Instance of Cebu. In the course of the trial, the trial court appointed two commissioners representing the plaintiffs and defendant to determine the value of the LSCO "CAVITE." Said commissioners found the value thereof to be P180,000.00.

After trial on the merits, a decision was rendered on January 24, 1974 finding that LSCO "Cavite" was solely to blame for the collision, thus its dispositive portion reads as follows:

"WHEREFORE, based on all the foregoing considerations, the Court renders judgment in favor of the plaintiffs and against the defendant ordering the latter to pay to the plaintiff Domestic Insurance Company of the Philippines the sum of P514,000.00, and to the plaintiff Hijos de F. Escano, Inc. the sum of P68,819.00, with interest on both sums at the legal rate, from the date the complaint was filed and the further sum of P252,346.70, with interest at the legal rate from August 7, 1972 and the sum of P163,721.91, without interest in trust for, and with direction that it pay the same to, the claimants concerned.

With costs against the defendant." 1

In the penultimate paragraph of the decision the trial court held:

"With respect to the defense that defendant's liability is limited to the value of the LSCO "Cavite" and freight earned, invoking Art. 837 of the Code of Commerce, the Court believes and so holds that the defense has not been established. Moreover, the evidence is such that in principle Art. 837 does not apply here. The counterclaim of the defendant is likewise ordered dismissed for lack of merit." 2

Not satisfied therewith the defendant interposed an appeal therefrom to the Court of Appeals wherein in due course a decision was rendered on June 30, 1981 affirming the decision of the court a quo in toto with costs against appellant. The motion for reconsideration filed by the defendant of the decision was denied in a resolution of the Court of Appeals of November 7, 1981. Hence said defendant filed a petition for certiorari in this Court based on the following grounds:

"I

THE LOWER COURT ERRED IN FINDING THAT THE LSCO "CAVITE" WAS THE VESSEL AT FAULT IN THE COLLISION.

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II

THE LOWER COURT ERRED IN NOT FINDING THAT THE COLLISION BETWEEN THE M/V "FERNANDO ESCANO" AND THE LSCO "CAVITE" WAS DUE SOLELY AND EXCLUSIVELY TO THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE MASTER OF THE FORMER VESSEL.

III

THE LOWER COURT ERRED IN NOT RULING THAT THE CIVIL LIABILITY OF THE PETITIONER, IF ANY THERE BE, SHOULD BE LIMITED TO THE VALUE OF THE LSCO "CAVITE " WITH ALL ITS APPURTENANCES AND FREIGHTAGE WHEN THE COLLISION TOOK PLACE." 3

In a resolution of February 26, 1982 this Court denied the petition for lack of merit.

A motion for reconsideration of said resolution was filed by petitioner limiting the issue to the legal question of whether under Art. 837 of the Code of Commerce abandonment of vessel at fault is necessary in order that the liability of owner of said vessel shall be limited only to the extent of the value thereof, its appurtenances and freightage earned in the voyage, After respondents submitted their comment to the motion as required, on September 29, 1982 this Court denied the motion for reconsideration for lack of merit.

With leave of court petitioner filed a second motion for reconsideration of said resolution raising the following issues:  cdll

"1.Whether abandonment is required under Article 837 of the Code of Commerce. The decisions of this Honorable Court cited by the parties in support of their respective positions only imply the answer to the question, and the implied answers are contradictory.

2.If abandonment is required under Article 837 of the Code of Commerce, when should it be made? The Code of Commerce is silent on the matter. The decision of this Honorable Court in Yangco v. Laserna, 73 Phil. 330, left the question open and no other decision, as far as petitioner can ascertain, has resolved the question.

3.Is the decision of this Honorable Court in Manila Steamship Co., Inc. v. Abdulhaman, 100 Phil. 32, wherein it was held that '(t)he international rule to the effect that the right of abandonment of vessels, as a legal limitation of a shipowner's own fault,' invoked by private respondents and apparently a major consideration in the denial of the motion for reconsideration, applicable to petitioner under the circumstances of the case at bar? 4

The respondents were required to comment thereto and after said comment was submitted petitioners submitted a reply thereto to which the respondents filed a rejoinder.

On November 28, 1983, the Court gave due course to the petition for review and considered the respondents' comment thereto as the Answer. The parties were required to file their briefs. Both parties having filed their briefs the case is now submitted for decision.

Articles 587, 590, and 837 of the Code of Commerce provide as follows:

"ART. 587.The ship agent shall also be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the vigilance over the goods which the vessel carried; but he may exempt himself therefrom by abandoning the vessel with all her equipment and the freight he may have earned during the voyage."

xxx xxx xxx

2

"ART. 590.The co-owners of the vessel shall be civilly liable in the proportion of their contribution to the common fund for the results of the acts of the captain, referred to in Article 587.

Each co-owner may exempt himself from this liability by the abandonment, before a notary, of that part of the vessel belonging to him.

xxx xxx xxx

"ART. 837.The civil liability incurred by the shipowners in the cases prescribed in this section, shall be understood as limited to the value of the vessel with all her appurtenances and freight earned during the voyage." 5

In the case of Philippine Shipping Company vs. Garcia, 6 which is an action for damages instituted by the Philippine Shipping Company for the loss of Steamship "Ntra. Sra. de Lourdes" as a result of the collision with the Steamship "Navarra" of Garcia, it was found that the "Navarra" was responsible for the collision. The claim of the Philippine Shipping is that the defendant should pay P18,000.00, the value of the "Navarra" at the time of its loss, in accordance with the provision of Article 837 of the Code of Commerce, and that it was immaterial that the "Navarra" had been entirely lost provided the value could be ascertained since the extent of liability of the owner of the colliding vessel resulting from the collision is to be determined by its value.

This Court speaking through the then Chief Justice Arellano held:

"Article 837 of the Code of Commerce provides: 'The civil liability contracted by the shipowners in the cases prescribed in this section shall be understood as limited to the value of the vessel with all her equipment and all the freight money earned during the voyage.'

'This section is a necessary consequence of the right to abandon the vessel given to the shipowner in article 587 of the code, and it is one of the many superfluities contained in the code.' (Lorenzo Benito, 'Lecciones,' 352.)

'ART. 587.The agent shall also be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried but he may exempt himself therefrom by abandoning the vessel with all her equipments and the freight he may have earned during the trip.

'ART. 590.The part owners of a vessel shall be civilly liable, in the proportion of their contribution to the common fund, for the results of the acts of the captain referred to in Article 587. Each part owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging to him.'

The 'Exposicion de motivos' of the Code of Commerce contains the following: 'The present code (1829) does not determine the juridical status of the agent where such agent is not himself the owner of the vessel. This omission is supplied by the proposed code, which provides in accordance with the principles of maritime law that by agent it is to be understood the person intrusted with the provisioning of the vessel, or the one who represents her in the port in which she happens to be. This person is the only one who represents the vessel — that is to say, the only one who represents the interests of the owner of the vessel. This provision has therefore cleared the doubt which existed as to the extent of the liability, both of the agent and of the owner of the vessel. Such liability is limited by the proposed code to the value of the vessel and other things appertaining thereto.'

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There is no doubt that if the Navarra had not been entirely lost, the agent, having been held liable for the negligence of the captain of the vessel, could have abandoned her with all her equipment and the freight money earned during the voyage, thus bringing himself within the provisions of article 837 in so far as the subsidiary civil liability is concerned. This abandonment which would have amounted to an offer of the value of the vessel, of her equipment, and freight money earned could not have been refused, and the agent could not have been personally compelled, under such circumstances, to pay the 18,000 pesos, the estimated value of the vessel at the time of the collision.

This is the difference which exists between the lawful acts and lawful obligations of the captain and the liability which he incurs on account of any unlawful act committed by him. In the first case, the lawful acts and obligations of the captain beneficial to the vessel may be enforced as against the agent for the reason that such obligations arise from the contract of agency (provided, however, that the captain does not exceed his authority), while as to any liability incurred by the captain through his unlawful acts, the ship agent is simply subsidiarily civilly liable. This liability of the agent is limited to the vessel and it does not extend further. For this reason the Code of Commerce makes the agent liable to the extent of the value of the vessel, as the codes of the principal maritime nations provide, with the vessel, and not individually. Such is also the spirit of our code.

The spirit of our code is accurately set forth in a treatise on maritime law, from which we deem proper to quote the following as the basis of this decision:

'That which distinguishes the maritime from the civil law and even from the mercantile law in general is the real and hypothecary nature of the former, and the many securities of a real nature that maritime customs from time immemorial the laws, the codes, and the later jurisprudence, have provided for the protection of the various and conflicting interests which are ventured and risked in maritime expeditions, such as the interests of the vessel and of the agent, those of the owners of the cargo and consignees, those who salvage the ship, those who make loans upon the cargo, those of the sailors and members of the crew as to their wages, and those of a constructor as to repairs made to the vessel.

'As evidence of this "real" nature of the maritime law we have (1) the limitation of the liability of the agents to the actual value of the vessel and the freight money, and (2) the right to retain the cargo and the embargo and detention of the vessel even in cases where the ordinary civil law would not allow more than a personal action against the debtor or person liable. It will be observed that these rights are correlative, and naturally so, because if the agent can exempt himself from liability by abandoning the vessel and freight money, thus avoiding the possibility of risking his whole fortune in the business, it is also just that his maritime creditor may for any reason attach the vessel itself to secure his claim without waiting for a settlement of his rights by a final judgment even to the prejudice of a third person.

'This repeals the civil law to such an extent that, in certain cases, where the mortgaged property is lost no personal action lies against the owner or agent of the vessel. For instance, where the vessel is lost the sailors and members of the crew can not recover their wages; in case of collision, the liability of the agent is limited as aforesaid, and in case of shipwreck, those who loan their money on the vessel and cargo lose all their rights and can not claim reimbursement under the law.

'There are two reasons why it is impossible to do away with these privileges, to wit: (1) The risk to which the thing is exposed, and (2) the "real" nature of the maritime law, exclusively "real," according to which the liability of the parties is limited to a thing which is at the mercy of the waves. If the agent is only liable with the vessel and freight money and both may be lost through the accidents of navigation it is only just that the maritime

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creditor have some means of obviating this precarious nature of his rights by detaining the ship, his only security, before it is lost.

'The liens, tacit or legal, which may exist upon the vessel and which a purchaser of the same would be obliged to respect and recognize are — in addition to those existing in favor of the State by virtue of the privileges which are granted to it by all the laws — pilot, tonnage, and port dues and other similar charges, the wages of the crew earned during the last voyage as provided in article 646 of the Code of Commerce, salvage dues under article 842, the indemnification due to the captain of the vessel in case his contract is terminated on account of the voluntary sale of the ship and the insolvency of the owner as provided in article 608, and all other liabilities arising from collisions under Articles 837 and 838.' (Madariaga, pp. 60, 62, 63, 85.)

We accordingly hold that the defendant is liable for the indemnification to which the plaintiff is entitled by reason of the collision, but he is not required to pay such indemnification for the reason that the obligation thus incurred has been extinguished on account of the loss of the thing bound for the payment thereof, and in this respect the judgment of the court below is affirmed except in so far as it requires the plaintiff to pay the costs of this action, which is not exactly proper. No special order is made as to costs of this appeal. After the expiration of twenty days let judgment be entered in accordance herewith and ten days thereafter the record be remanded to the Court of First Instance for execution. So ordered." 7

From the foregoing the rule is that in the case of collision, abandonment of the vessel is necessary in order to limit the liability of the shipowner or the agent to the value of the vessel, its appurtenances and freightage earned in the voyage in accordance with Article 837 of the Code of Commerce. The only instance where such abandonment is dispensed with is when the vessel was entirely lost. In such case, the obligation is thereby extinguished.

In the case of Government of the Philippines vs. Maritime this Court citing Philippine Shipping stated the exception thereto in that while "the total destruction of the vessel extinguishes a maritime lien, as there is no longer any risk to which it can attach, but the total destruction of the vessel does not affect the liability of the owner for repairs of the vessel completed before its loss, 8 interpreting the provision of Article 591 of the Code of Commerce in relation with the other Articles of the same Code.

In Ohta Development Company vs. Steamship "Pompey" 9 it appears that at the pier sunk and the merchandise was lost due to the fault of the steamship "Pompey" that was then docked at said pier. This Court ruled that the liability of the owner of "Pompey" may not be limited to its value under Article 587 of the Code of Commerce as there was no abandonment of the ship. We also held that Article 837 cannot apply as it refers to collisions which is not the case here. 10

In the case of Guison vs. Philippine Shipping Company 11 involving the collision at the mouth of the Pasig river between the motor launches Martha and Manila H in which the latter was found to be at fault, this Court, applying Article 837 of the Code of Commerce limited the liability of the agent to its value.

In the case of Yangco vs. Laserna 12 which involved the steamers SS "Negros" belonging to Yangco which after two hours of sailing from Romblon to Manila encountered rough seas as a result of which it capsized such that many of its passengers died in the mishap, several actions for damages were filed against Yangco for the death of the passengers in the Court of First Instance of Capiz. After rendition of the judgment for damages against Yangco, by a verified pleading, he sought to abandon the vessel to the plaintiffs in the three cases together with all the equipment without prejudice to the right to appeal. This Court in resolving the issue held as follows: cdll

5

"Brushing aside the incidental issues, the fundamental question here raised is: May the shipowner or agent, notwithstanding the total loss of the vessel as a result of the negligence of its captain, be properly held liable in damages for the consequent death of its passengers? We are of the opinion and so hold that this question is controlled by the provision of article 587 of the Code of Commerce. Said article reads:

'The agent shall also be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried; but he may exempt himself therefrom by abandoning the vessel with all her equipments and the freight he may have earned during the voyage.'

The provision accords a shipowner or agent the right of abandonment; and by necessary implication his liability is confined to that which he is entitled as of right to abandon — 'the vessel with all her equipments and the freight it may have earned during the voyage.' It is true that the article appears to deal only with the limited liability of shipowners or agents for damages arising from the misconduct of the captain in the care of the goods which the vessel carries, but this is a mere deficiency of language and in no way indicates the true extent of such liability. The consensus of authorities is to the effect that notwithstanding the language of the afore-quoted provision, the benefit of limited liability therein provided for, applies in all cases wherein the shipowner or agent may properly be held liable for the negligent or illicit acts of the captain. Dr. Jose Ma. Gonzalez de Echavarri y Vivanco, commenting on said article, said:

'La letra del Codigo, en el articulo 587, presenta una gravisima cuestion. El derecho de abandono, si se atiende a lo escrito, solo se refiere a las indemnizaciones a que diere lugar la conducta del Capitan en la custodia de los efectos que cargo en el buque.

'Es ese el espiritu del legislador? No; habra derecho de abandono en las responsabilidades nacidas de obligaciones contraidas por el Capitan y de otros actos de este? Lo reputamos evidente y, para fortalecer nuestra opinion, basta copiar el siguiente parrafo de la Exposicion de motivos:

'El proyecto, al aplicar estos principios, se inspira tambien en los intereses del comercio maritimo, que quedaran mas asegurados of reciendo a todo el que contrata con el naviero o Capitan del buque, la garantia real del mismo, cualesquiera que sean las facultades o atribuciones de que se hallen investidos.' (Echavarri, Codigo de Comercio, Tomo 4, 2. ed., pags. 483-484.)

A cursory examination will disclose that the principle of limited liability of a shipowner or agent is provided for in but three articles of the Code of Commerce — Article 587 aforequoted and articles 590 and 837. Article 590 merely reiterates the principle embodied in article 587, where the vessel is owned by several person Article 837 applies the same principle in cases of collision, and it has been observed that said article is but 'a necessary consequence of the right to abandon the vessel given to the shipowner in Article 587 to the Code, and it is one of the many superfluities contained in the Code.' (Lorenzo Benito, Lecciones 352, quoted in Philippine Shipping Co. vs. Garcia, 6 Phil. 281, 282.) In effect, therefore, only Articles 587 and 590 are the provisions contained in our Code of Commerce on the matter, and the framers of said code had intended those provisions to embody the universal principle of limited liability in all cases. . . ." 13

In the said case We invoked our ruling in Philippine Shipping and concluded as follows:

"In the light of all the foregoing, we therefore hold that if the shipowner or agent may in any way be held civilly liable at all for injury to or death of passengers arising from the negligence of the captain in cases of collisions or shipwrecks, his liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its

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extinction. In arriving at this conclusion, we have not been unmindful of the fact that the ill-fated steamship Negros, as a vessel engaged in interisland trade, is a common carrier (De Villata v. Stanely, 32 Phil. 541), and that the relationship between the petitioner and the passengers who died in the mishap rests on a contract of carriage. But assuming that petitioner is liable for a breach of contract of carriage, the exclusively 'real and hypothecary nature' of maritime law operates to limit such liability to the value of the vessel, or to the insurance thereon, if any. In the instant case it does not appear that the vessel was insured.

Whether the abandonment of the vessel sought by the petitioner in the instant case was in accordance with law or not, is immaterial. The vessel having totally perished, any act of abandonment would be an idle ceremony." 14

In the case of Abueg vs. San Diego, 15 which involves a claim of compensation under the Workmen's Compensation Act for the deceased members of the crew of the MS "San Diego II" and MS "Bartolome" which were caught by a typhoon in the vicinity of Mindoro Island and as a consequence of which they were sunk and totally lost, this Court held as follows:

"Counsel for the appellant cite article 587 of the Code of Commerce which provides that if the vessel together with all her tackle and freight money earned during the voyage are abandoned, the agent's liability to third persons for tortious acts of the captain in the care of the goods which the ship carried is extinguished (Yangco vs. Laserna, 73 Phil. 330) Article 837 of the same Code which provides that in cases of collision, the shipowners' liability is limited to the value of the vessel with all her equipment and freight earned during the voyage (Philippine Shipping Company vs. Garcia, 6 Phil. 281); and Article 643 of the same Code which provides that if the vessel and freight are totally lost, the agent's liability for wages of the crew is extinguished. From these premises counsel draw the conclusion that appellant's liability, as owner of the two motor ships lost or sunk as a result of the typhoon that lashed the island of Mindoro on October 1, 1941, was extinguished.

The real and hypothecary nature of the liability of the shipowner or agent embodied in the provisions of the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing conditions of the maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against these adverse conditions and to encourage shipbuilding and maritime commerce it was deemed necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance, if any, so that if the shipowner or agent abandoned the ship, equipment and freight, his liability was extinguished.

But the provisions of the Code of Commerce invoked by appellant have no room in the application of the Workmen's Compensation Act which seeks to improve, and aims at the amelioration of, the condition of laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or death of, a passenger by or through the misconduct of the captain or master of the ship; nor the liability for the loss of the ship as a result of collision; nor the responsibility for wages of the crew, but a liability created by a statute to compensate employees and laborers in cases of injury received by or inflicted upon them, while engaged in the performance of their work or employment, or the heirs and dependents of such laborers and employees in the event of death caused by their employment. Such compensation has nothing to do with the provisions of the Code of Commerce regarding maritime commerce. It is an item in the cost of production which must be included in the budget of any well-managed industry.

Appellant's assertion that in the case of Enciso vs. Dy-Liaco (57 Phil. 446), and Murillo vs. Mendoza (66 Phil. 689), the question of the extinction of the shipowner's liability due to abandonment of the ship by him was not fully discussed, as in the case of Yangco vs. Laserna, supra, is not entirely correct. In the last mentioned case, the limitation of the shipowner's liability to the value of the ship, equipment, freight, and insurance, if any, was the lis mota. In the case of Enciso vs. Dy-Liaco, supra, the application of the Workmen's

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Compensation Act to a master or patron who perished as a result of the sinking of the motorboat of which he was the master, was the controversy submitted to the court for decision. This Court held in that case that 'It has been repeatedly stated that the Workmen's Compensation Act was enacted to abrogate the common law and our Civil Code upon culpable acts and omissions, and that the employer need not be guilty of neglect or fault, in order that responsibility may attach to him' (pp. 449-450); and that the shipowner was liable to pay compensation provided for in the Workmen's Compensation Act, notwithstanding the fact that the motorboat was totally lost. In the case of Murillo vs. Mendoza, supra, this Court held that 'The rights and responsibilities defined in said Act must be governed by its own peculiar provisions in complete disregard of other similar provisions of the Civil as well as the mercantile law. If an accident is compensable under the Workmen's Compensation Act, it must be compensated even when the workman's right is not recognized by or is in conflict with other provisions of the Civil Code or of the Code of Commerce. The reason behind this principle is that the Workmen's Compensation Act was enacted by the Legislature in abrogation of the other existing laws.' This quoted part of the decision is in answer to the contention that it was not the intention of the Legislature to repeal Articles 643 and 837 of the Code of Commerce with the enactment of the Workmen's Compensation Act." 16

In said case the Court reiterated that the liability of the shipowner or agent under the provision of Articles 587 and 837 of the Code of Commerce is limited to the value of the vessel with all her equivalent and freight earned during the voyage if the shipowner or agent abandoned the ship with all the equipment and freight. However, it does not apply to the liability under the Workmen's Compensation Act where even as in said case the vessel was lost the liability thereunder is still enforceable against the employer or shipowner.

The case of Manila Steamship Company, Inc. vs. Insa Abdulhaman and Lim Hong To 17 is a case of collision of the ML "Consuelo V" and MS "Bowline Knot" as a result of which the ML "Consuelo V" capsized and was lost where nine (9) passengers died or were missing and all its cargoes were lost. In the action for damages arising from the collision, applying Article 837 of the Code of Commerce, this Court held that in such case where the collision was imputable to both of them, each vessel shall suffer her own damages and both shall be solidarily liable for the damages occasioned to their cargoes. 18 Thus, We held:

"In fact, it is a general principle, well established maritime law and custom, that shipowners and ship agents are civilly liable for the acts of the captain (Code of Commerce, Article 586) and for the indemnities due the third persons (Article 587); so that injured parties may immediately look for reimbursement to the owner of the ship, it being universally recognized that the ship master or captain is primarily the representative of the owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256, 260). This direct liability, moderated and limited by the owner's right of abandonment of the vessel and earned freight /Article 587) has been declared to exist not only in case of breached contracts, but also in cases of tortious negligence (Yu Biao Sontua vs. Osorio, 43 Phil. 511; 515):

xxx xxx xxx

It is easy to see that to admit the defense of due diligence of a bonus paterfamilias (in the selection and vigilance of the officers and crew) as exempting the shipowner from any liability for their faults, would render nugatory the solidary liability established by Article 827 of the Code of Commerce for the greater protection of injured parties. Shipowners would be able to escape liability in practically every case, considering that the qualifications and licensing of ship masters and officers are determined by the State, and that vigilance is practically impossible to exercise over officers and crew of vessels at sea. To compel the parties prejudiced to look to the crew for indemnity and redress would be an illusory remedy for almost always its members are, from captains down, mere wage earners.

8

We, therefore, find no reversible error in the refusal of the Court of Appeals to consider the defense of the Manila Steamship Co., that it is exempt from liability for the collision with the M/L "Consuelo V" due to the absence of negligence on its part in the selection and supervision of the officers and crew of the M/S "Bowline Knot." 19

However, insofar as respondent Lim Hong To, owner of M/L "Consuelo V" who admittedly employed an unlicensed master and engineer and who in his application for permission to operate expressly assumed full risk and responsibility thereby (Exh. 2) this Court held that the liability of Lim Hong To cannot be limited to the value of his motor launch by abandonment of the vessel as invoked in Article 587 of the Code of Commerce, We said:

"The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a shipowner's liability, does not apply to cases where the injury or the average is due to shipowner's own fault. Farina (Derecho Commercial Maritimo, Vol. I, pp. 122-123), on the authority of judicial precedents from various nations, sets the rule to be as follows:

xxx xxx xxx" 20

From the foregoing, it is clear that in case of collision of vessels, in order to avail of the benefits of Article 837 of the Code of Commerce the shipowner or agent must abandon the vessel. In such case the civil liability shall be limited to the value of the vessel with all the appurtenances and freight earned during the voyage. However, where the injury or average is due to the ship-owner's fault as in said case, the shipowner may not avail of his right to limited liability by abandoning the vessel.

We reiterate what We said in previous decisions that the real and hypothecary nature of the liability of the shipowner or agent is embodied in the provisions of the Maritime Law, Book III, Code of Commerce. 21 Articles 587, 590 and 837 of the same code are precisely intended to limit the liability of the shipowner or agent to the value of the vessel, its appurtenances and freightage earned in the voyage, provided that owner or agent abandons the vessel. Although it is not specifically provided for in Article 837 of the same code that in case of collision there should be such abandonment to enjoy such limited liability, said article on collision of vessels is a mere amplification of the provisions of Articles 587 and 590 of same code where abandonment of the vessel is a pre-condition. Even without said article, the parties may avail of the provisions of Articles 587 and 590 of same code in case of collision. This is the reason why Article 837 of the same code is considered a superfluity.22

Hence the rule is that in case of collision there should be abandonment of the vessel by the shipowner or agent in order to enjoy the limited liability provided for under said Article 837.  llcd

The exception to this rule is when the vessel is totally lost in which case there is no vessel to abandon so abandonment is not required. Because of such total loss the liability of the shipowner or agent for damages is extinguished. Nevertheless, the shipowner or agent is personally liable for claims under the Workmen's Compensation Act and for repairs of the vessel before its loss. 23

In case of illegal or tortious acts of the captain the liability of the shipowner and agent is subsidiary. In such instance the shipowner or agent may avail of the provisions of Article 837 of the Code by abandoning the vessel. 24

However, if the injury or damage is caused by the shipowner's fault as where he engages the services of an inexperienced and unlicensed captain or engineer, he cannot avail of the

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provisions of Article 837 of the Code by abandoning the vessel. 25 He is personally liable for the damages arising thereby.

In the case now before the Court there is no question that the action arose from a collision and the fault is laid at the doorstep of LSCO "Cavite" of petitioner. Undeniably petitioner has not abandoned the vessel. Hence petitioner can not invoke the benefit of the provisions of Article 837 of the Code of Commerce to limit its liability to the value of the vessel, all the appurtenances and freightage earned during the voyage.

In the light of the foregoing conclusion, the issue as to when abandonment should be made need not be resolved. LexLib

WHEREFORE, the petition is DENIED with costs against petitioner.

SO ORDERED.

Teehankee (C.J.), Narvasa, Cruz and Paras, JJ., concur.

[CA-No. 773 . December 17, 1946.]

DIONISIA ABUEG, ET AL., plaintiffs-appellees, vs. BARTOLOME SAN DIEGO, defendant-appellant.

[CA-No. 774 . December 17, 1946.]

MARCIANA DE SALVACION, ET AL., plaintiffs-appellees, vs. BARTOLOME SAN DIEGO, defendant-appellant.

[CA-No. 775 . December 17, 1946.]

ROSARIO OCHING, ET AL., plaintiffs-appellees, vs. BARTOLOME SAN DIEGO, defendant-appellant.

Lichauco, Picazo & Mejia, for appellant.

Cecilio I. Lim and Roberto P. Ancog, for appellees.

SYLLABUS

1.MARITIME LAW; SHIPOWNER OR AGENT, ORIGIN OF REAL AND HYPOTHECARY NATURE OF LIABILITY OF. — The real and hypothecary nature of the liability of the shipowner or agent embodied in provisions of the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing conditions of the maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against these adverse conditions and to encourage shipbuilding and maritime commerce, it was deemed necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel,

10

equipment, and freight, or insurance, if any, so that if the shipowner or agent abandoned the ship, equipment, and freight, his liability was extinguished.

2.WORKMEN'S COMPENSATION ACT; PROVISIONS OF CODE OF COMMERCE REGARDING MARITIME COMMERCE WITHOUT EFFECT IN APPLICATION OF. — The provisions of the Code of Commerce regarding maritime commerce have no room in the application of the Workmen's Compensation Act which seeks to improve, and aims at the amelioration of, the condition of laborers and employees. Said Act creates a liability to compensate employees and laborers in cases of injury received by or inflicted upon them, while engaged in the performance of their work or employment, or the heirs and dependents of such laborers and employees in the event of death caused by their employment.

3.ID.; INDUSTRIAL EMPLOYEES; OFFICERS OF MOTOR SHIPS ENGAGED IN FISHING EXCEPTIONS. — The officers of motor ships engaged in fishing are industrial employees within the purview of section 39, paragraph (d), as amended, for industrial employment "includes all employment or work at a trade, occupation or profession exercised by an employer for the purpose of gain." The only exceptions recognized by the Workmen's Compensation Act are agriculture, charitable institutions and domestic service. Even employees engaged in agriculture for the operation of mechanical implements, are entitled to the benefits of the Workmen's Compensation Act.

4.ID.; COASTWISE AND INTERISLAND TRADE, MEANING OF; FISHING, WHEN A TRADE . — The term "coastwise and interisland trade" does not have such a narrow meaning as to confine it to the carriage for hire of passengers and/or merchandise on vessels between ports and places in the Philippines because while fishing is an industry, if the catch is brought to a port for sale, it is at the same time a trade.

D E C I S I O N

PADILLA, J p:

This is an appeal from a judgment rendered by the Court of First Instance of Manila in the above-entitled cases awarding plaintiffs the compensation provided for in the Workmen's Compensation Act.

The record of the cases was forwarded the Court of Appeals for review, but as there was no question of fact involved in the appeal, said court forwarded the record to this Court. The appeal was pending when the Pacific War broke out, and continued pending until after liberation, because the record of the cases was destroyed as a result of the battle waged by the forces of liberation against the enemy. As provided by law, the record was reconstituted and we now proceed to dispose of the appeal.

Appellant, who was the owner of the motor ships San Diego II and Bartolome S, states in his brief the following:

There is no dispute as to the facts involved in these cases and they may be gathered from the pleadings and the decision of the trial Court. In case CA-G. R. No. 773, Dionisia Abueg is the widow of the deceased, Amado Nuñez; who was a machinist on board the M/S San Diego II belonging to the defendant-appellant. In case CA-G. R. NO. 774, plaintiff-appellee, Marciana S. dc Salvacion, is the widow of the deceased, Victoriano Salvacion, who was a machinist on board the M/S Bartolome S also belonging to the defendant-appellant. In case CA-G. R. NO. 775, the plaintiff-appellee, Rosario R. Oching is the widow of Francisco Oching who was captain or patron of the defendant-appellant's M/S Bartolome S.

The M/S San Diego II and the M/S Bartolome, while engaged in fishing operations around Mindoro Island on Oct. 1, 1941 were caught by a typhoon as a consequence of which they were sunk and totally lost. Amado Nuñez, Victoriano Salvacion and Francisco Oching while acting in their capacities perished in the shipwreck(Appendix A, p. IV).

11

It is also undisputed that the above-named vessels were not covered by any insurance. (Appendix A, p. IV.)Counsel for the appellant cite article 587 of the Code of Commerce which provides that

if the vessel together with all her tackle and freight money earned during the voyage are abandoned, the agent's liability to third persons for tortuous acts of the captain in the care of the goods which the ship carried is extinguished (Yangco vs. Laserna, 73 Phil., 330); article 837 of the same Code which provides that in cases of collision, the shipowners' liability is limited to the value of the vessel with all her equipment and freight during the voyage (Philippines Shipping Company vs. Garcia, 6 Phil., 281); and article 643 of the same Code which provides that if the vessels and freight are totally lost, the agent's liability for wages of the crew is extinguished. From these premises counsel draw the conclusion that appellant's liability, as owner of the two motor ships lost or sunk as a result of the typhoon that lashed the island of Mindoro on October 1, 1941, was extinguished.

The real and hypothecary nature of the liability of the shipower or agent embodied in the provisions of the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing conditions of the maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. to offset against these adverse conditions and to encourage shipbuilding and maritime commerce it was deemed necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance, if any, so that if the shipowner or agent abandoned the ship, equipment, and freight, his liability was extinguished.

But the provisions of the Code of Commerce invoked by appellant have no room in the application of the Workmen's Compensation Act which seeks to improve, and aims at the amelioration of, the condition of laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or death of, a passenger by or through the misconduct of the captain or master of the ship; nor the liability for the loss of the ship as a result of collision; nor the responsibility for w ages of the crew, but a liability created by a statute to compensate employees and laborers in cases of injury received by or inflicted upon them, while engaged in the performance of their work or employment, or the heirs and dependents of such laborers and employees in the event of death caused by their employment Such Compensation has nothing to do with the provisions of the Code of Commerce regarding maritime commerce. It is an item in the costs of production which must be included in the budget of any well-managed industry.

Appellant's assertion that in the case of Francisco vs. Dy Liaco (57 Phil., 446), and Murillo vs. Mendoza (66 Phil., 689), the question of the extinction of the shipowner's liability due to abandonment of the ship by him was not fully discussed, as in the case of Yangco vs. Laserna, supra, is not entirely correct. In the last mentioned case, the limitation of the shipowner's liability to the value of the ship, equipment, freight, and insurance, if any, was the lis mota. In the case of Francisco vs. Dy-Liacco, supra, the application of the Workmen's Compensation Act to a master or patron who perished as a result of the sinking of the motorboat of which he was the master, was the controversy submitted to the court for decision. This Court held in that case that "It has been repeatedly stated that the Workmen's Compensation Act was enacted to abrogate the common law and our Civil Code upon culpable acts and omissions, and that the employer need not be guilty of neglect or fault, in order that responsibility may attach to him" (pp. 449-450); and that the shipowner was liable to pay compensation provided for in the Workmen's Compensation Act, notwithstanding the fact that the motorboat was totally lost. In the case of Murillo vs. Mendoza, supra, this Court held that "The rights and responsibilities defined in said Act must be governed by its own peculiar provisions in complete disregard of other similar provisions of the civil as well as the mercantile law. If an accident is compensable under the Workmen's Compensation Act, it must be compensated even when the workman's right is not recognized by or is in conflict with other provisions of the Civil Code or of the Code of Commerce. The reason behind this principle is that the Workmen's Compensation Act was enacted by the Legislature in abrogation of the other existing laws." This quoted part of the decision is in answer to the

12

contention that it was not the intention of the Legislature to repeal articles 643 and 837 of the Code of Commerce with the enactment of the Workmen's Compensation Act.

In the memorandum filed by counsel for the appellant, a new point not relied upon in the court below is raised. They contend that the motorboats engaged in fishing could not be deemed to be in the coastwise and interisland trade, as contemplated in section 38 of the Workmen's Compensation Act (No. 3428), as amended by Act No. 3812, in as much as, according to counsel, a craft engaged in the coastwise and interisland trade is one that carries passengers and/or merchandise for hire between ports and places in the Philippine Islands.

 This new point raised by counsel for the appellant is inconsistent with the first, for, if

the motor ships in question while engaged in fishing, were to be considered as not engaged in interisland and coastwise trade, the provisions or the Code of Commerce invoked by them regarding limitation of the shipowner's liability or extinction thereof when the shipowner abandons the ship, cannot be applied Lopez vs. Duruelo, 52 Phil., 229). Granting however, that the motor ships run and operated by the appellant were not engaged in the coastwise and interisland trade, as contemplated in section 38 of the Workmen's compensation Act, as amended, still the deceased officers of the motor ships in question were industrial employees within the purview of section 39, paragraph (d), as amended, for industrial employment "includes all employment or work at a trade, occupation or profession exercised by an employer for the purpose of gain." The only exceptions recognized by the Act are agriculture, charitable institutions and domestic service. Even employees engaged in agriculture for the operation of mechanical implements, are entitled to the benefits of the Workmen's Compensation Act Francisco vs. Consing, 63 Phil., 354). In Murillo vs. Mendoza, supra, this Court held that "our Legislature has deemed it advisable to include in the Workmen's Compensation Act all accidents that may occur to workmen or employees in factories, shops and other industrial and agricultural workplaces as well as in the interisland seas of the Archipelago." But we do not believe that the term "coastwise and interisland trade" has such a narrow meaning as to confine it to the carriage for hire of passengers and/or merchandise, on vessels between Ports and Places in the Philippines, because while fishing is an industry, if the catch is brought to a port for sale, it is at the same time a trade.

Finding no merit in the appeal filed in these cases, we affirm the judgment of the lower court, with costs against the appellant.

Moran, C.J., Feria, Pablo, Perfecto, Hilado Bengzon, Briones and Tuazon, JJ., concur.

[G.R. No. 21495. March 18, 1924.]

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-appellant, vs. THE INSULAR MARITIME CO., defendant-appellee.

Attorney-General Villa-Real for appellant.

Antonio M. Opisso for appellee.

SYLLABUS

1.SHIPPING; VESSELS; LIABILITY OF OWNERS OF A VESSEL FOR REPAIRS TO VESSEL AFTER LOSS OF THE VESSEL. — The Government of the Philippine Islands terminated repairs on the motor ship Insular on November 29, 1919. The Insular suffered a total loss by fire on April 15, 1920. Collection of claim was attempted by the Government on April 30, 1921, that

13

is, after the loss of the vessel. Held: That the loss of the vessel Insular did not extinguish the obligation and that the owners of the vessel are still liable for the repairs.

2.ID.; ID.; ID. — The total destruction of the vessel does not affect the liability of the owners for repairs on the vessel completed before its loss.

3.ID.; ID.; D. — The case of Philippine Shipping Company vs. Garcia Vergara ([1906], 6 Phil., 281) distinguished. That case concerned the loss of a vessel by collision. This case concerns a contractual relationship which remains unaffected by the loss of the thing, the subject-matter of the contract.

D E C I S I O N

MALCOLM, J p:

The Government of the Philippine Islands seeks by this action to recover from The Insular Maritime Company the sum of P30,437.91 for repairs made by the Bureau of Commerce and Industry on the motor ship Insular.

The Insular Maritime Company was organized with a capital of P150,000. It became the owner of one vessel only, the Insular, valued at P150,000. On October 29, 1919, The Insular Maritime Company asked the Bureau of Commerce and Industry to perform certain repairs on the Insular. The Government consented and terminated said repairs on November 29 of the same year. Subsequent thereto, on April 15, 1920, the Insular suffered a total loss by fire.

The bill prepared by the chief accountant of the Bureau of Commerce and Industry for work done on the motor ship Insular in the amount of P30,437.91, was dated July 31, 1920. Collection of the claim was attempted pursuant to formal demand made by the Acting Insular Auditor of date April 30, 1921.

It will thus be noted, as was emphasized by the defense and by His Honor, the trial judge, that no steps were taken by the Government to secure payment for the repairs until after the loss of the vessel Insular. The first error assigned by the Attorney-General addressed to this finding of fact is accordingly without merit.

The trial judge further found in effect, as a legal conclusion, that the loss of the vessel Insular extinguished the obligation. The Attorney-General challenges the correctness of this view.

The decision of the trial judge was predicated on his understanding of the provisions of article 591 of the Code of Commerce in relation with other articles of the same Code, and with the decision of this court in the case of Philippine Shipping Co. vs. Garcia Vergara ([1906], 6 Phil., 281). As to the applicability of article 591 of the Code of Commerce, there is nothing in the language to denote that the liability of the owners of a vessel is wiped out by the loss of that vessel. As to the applicability of the decision in the case of Philippine Shipping Co. vs. Garcia Vergara, supra, the facts are not the same. There, the owners and agents of a vessel causing the loss of another vessel by collision were held "not liable beyond the vessel itself causing the collision," but were "not required to pay such indemnification for the reason that the obligation thus incurred has been extinguished on account of the loss of the thing bound for the payment thereof." Here, there is a contractual relation which remains unaffected by the loss of the thing concerned in the contract and which is governed principally by the provisions of the Civil Code.

The rights and liabilities of owners of ships are in many respects essentially the same as in the case of other owners of things. As a general rule, the owners of a vessel and the vessel itself are liable for necessary repairs. Naturally the total destruction of the vessel

14

extinguishes a maritime lien, as there is no longer any res to which it can attach. But the total destruction of the vessel does not affect the liability of the owners for repairs on the vessel completed before its loss.

It is but fair to say that what has been stated in this decision more accurately expresses the consensus of opinion in the court than it does the views of the writer, who sees more in the appellee's case than do his colleagues in the court.

The trial court was accordingly right in its exposition of the facts but not in its application of the law. Judgment must therefore be as it is hereby reversed, and in lieu of the judgment appealed from, another shall be entered here in favor of the plaintiff and against the defendant for the sum of P30,437.91 with legal interest from July 20, 1921, when the complaint was presented, until payment. With out special finding as to costs in either instance, it is so ordered.

Araullo, C. J., Johnson, Street, Avanceña, Ostrand, Johns, and Romualdez, JJ., concur.

[G.R. No. 160088. July 13, 2011.]

AGUSTIN P. DELA TORRE, petitioner, vs. THE HONORABLE COURT OF APPEALS, CRISOSTOMO G. CONCEPCION, RAMON "BOY" LARRAZABAL, PHILIPPINE TRIGON SHIPYARD CORPORATION, and ROLAND G. DELA TORRE, respondents.

[G.R. No. 160565. July 13, 2011.]

PHILIPPINE TRIGON SHIPYARD CORPORATION and ROLAND G. DELA TORRE, petitioners, vs. CRISOSTOMO G. CONCEPCION, AGUSTIN DELA TORRE and RAMON "BOY" LARRAZABAL, respondents.

DECISION

MENDOZA, J p:

These consolidated petitions 1 for review on certiorari seek to reverse and set aside the September 30, 2002 Decision 2 and September 18, 2003 Resolution 3 of the Court of Appeals (CA) in CA-G.R. CV No. 36035, affirming in toto the July 10, 1991 Decision 4 of the Regional Trial Court, Branch 60, Angeles City (RTC). The RTC Decision in Civil Case No. 4609, an action for Sum of Money and Damages, ordered the defendants, jointly and severally, to pay various damages to the plaintiff. aIHCSA

The Facts:

Respondent Crisostomo G. Concepcion (Concepcion) owned LCT-Josephine, a vessel registered with the Philippine Coast Guard. On February 1, 1984, Concepcion entered into a "Preliminary Agreement" 5 with Roland de la Torre (Roland) for the dry-docking and repairs of the said vessel as well as for its charter afterwards. 6Under this agreement, Concepcion agreed that after the dry-docking and repair of LCT-Josephine, it "should" be chartered for P10,000.00 per month with the following conditions:

15

1.The CHARTERER will be the one to pay the insurance premium of the vessel

2.The vessel will be used once every three (3) months for a maximum period of two (2) weeks

3.The SECOND PARTY (referring to Concepcion) agreed that LCT-Josephine should be used by the FIRST PARTY (referring to Roland) for the maximum period of two (2) years

4.The FIRST PARTY (Roland) will take charge[x] of maintenance cost of the said vessel. [Underscoring Supplied]

On June 20, 1984, Concepcion and the Philippine Trigon Shipyard Corporation 7 (PTSC), represented by Roland, entered into a "Contract of Agreement," 8 wherein the latter would charter LCT-Josephine retroactive to May 1, 1984, under the following conditions:

a.Chartered amount of the vessel — P20,000.00 per month effective May 1, 1984;

j. *The owner (Concepcion) shall pay 50% downpayment for the dry-docking and repair of the vessel and the balance shall be paid every month in the amount of P10,000.00, to be deducted from the rental amount of the vessel;

k.In the event that a THIRD PARTY is interested to purchase the said vessel, the SECOND PARTY (PTSC/Roland) has the option for first priority to purchase the vessel. If the SECOND PARTY (PTSC/Roland) refuses the offer of the FIRST PARTY (Concepcion), shall give the SECOND PARTY (PTSC/Roland) enough time to turn over the vessel so as not to disrupt previous commitments; DIETcC

l.That the SECOND PARTY (PTSC/Roland) has the option to terminate the contract in the event of the SECOND PARTY (PTSC/Roland) decide to stop operating;

m.The SECOND PARTY (PTSC/Roland) shall give 90 days notice of such termination of contract;

n.Next . . . year of dry-docking and repair of vessel shall be shouldered by the SECOND PARTY (PTSC/Roland); [Underscoring Supplied]

On August 1, 1984, PTSC/Roland sub-chartered LCT-Josephine to Trigon Shipping Lines (TSL), a single proprietorship owned by Roland's father, Agustin de la Torre(Agustin). 9 The following are the terms and conditions of that "Contract of Agreement:" 10

a.Chartered amount of the vessel P30,000.00 per month effective August, 1984;

b.Downpayment of the 50% upon signing of the contract and the balance every end of the month;

c.Any cost for the additional equipment to be installed on the vessel will be borne by the FIRST PARTY (PTSC/Roland) and the cost of the equipment will be deductible from the monthly rental of the vessel;

d.In the event the vessel is grounded or other [force majeure] that will make the vessel non-opera[xx]ble, the rental of the vessel shall be suspended from the start until the vessel will be considered operational;

16

e.The cost for the dry-docking and/or repair of vessel shall not exceed P200,000.00, any excess shall be borne by the SECOND PARTY (TSL/Agustin);

f.The SECOND PARTY (TSL/Agustin) undertakes to shoulder the maintenance cost for the duration of the usage;

g.All cost for the necessary repair of the vessel shall be on the account of the SECOND PARTY (TSL/Agustin);

h.That the SECOND PARTY (TSL/Agustin) has the option to terminate the contract in the event the SECOND PARTY (TSL/Agustin) decides to stop operating;

j. *The FIRST PARTY (PTSC/Roland) will terminate the services of all vessel's crew and the SECOND PARTY (TSL/Agustin) shall have the right to replace and rehire the crew of the vessel.

k.Insurance premium of the vessel will be divided equally between the FIRST PARTY (PTSC/Rolando) and the SECOND PARTY (TSL/Agustin). [Underscoring supplied]

On November 22, 1984, TSL, this time represented by Roland per Agustin's Special Power of Attorney, 11 sub-chartered LCT-Josephine to Ramon Larrazabal(Larrazabal) for the transport of cargo consisting of sand and gravel to Leyte. The following were agreed upon in that contract, 12 to wit:

1.That the FIRST PARTY (TSL by Roland) agreed that LCT-Josephine shall be used by the SECOND PARTY (Larrazabal) for and in consideration on the sum of FIVE THOUSAND FIVE HUNDRED (P5,500.00) PESOS, Philippine currency per day charter with the following terms and conditions.

2.That the CHARTERER should pay P2,000.00 as standby pay even that will made (sic) the vessel non-opera[xx]ble cause[d] by natur[al] circumstances.

3.That the CHARTERER will supply the consumed crude oil and lube oil per charter day.

4.That the SECOND PARTY (Larrazabal) is the one responsible to supervise in loading and unloading of cargo load on the vessel.

5.That the SECOND PARTY (Larrazabal) shall give one week notice for such termination of contract.

6.TERMS OF PAYMENTS that the SECOND PARTY (Larrazabal) agreed to pay 15 days in advance and the balance should be paid weekly. [Underscoring Supplied] IHAcCS

On November 23, 1984, the LCT-Josephine with its cargo of sand and gravel arrived at Philpos, Isabel, Leyte. The vessel was beached near the NDC Wharf. With the vessel's ramp already lowered, the unloading of the vessel's cargo began with the use of Larrazabal's payloader. While the payloader was on the deck of the LCT-Josephine scooping a load of the cargo, the vessel's ramp started to move downward, the vessel tilted and sea water rushed in. Shortly thereafter, LCT-Josephinesank. 13

Concepcion demanded that PTSC/Roland refloat LCT-Josephine. The latter assured Concepcion that negotiations were underway for the refloating of his vessel. 14Unfortunately, this did not materialize.

17

For this reason, Concepcion was constrained to institute a complaint for "Sum of Money and Damages" against PTSC and Roland before the RTC. PTSC and Roland filed their answer together with a third-party complaint against Agustin. Agustin, in turn, filed his answer plus a fourth-party complaint against Larrazabal. The latter filed his answer and counterclaim but was subsequently declared in default by the RTC. 15 Eventually, the fourth-party complaint against Larrazabal was dismissed when the RTC rendered its decision in favor of Concepcion on July 10, 1991. 16 In said RTC decision, the following observations were written:

The testimonies of Roland de la Torre and Hubart Sungayan quoted above, show: (1) that the payloader was used to unload the cargo of sand and gravel; (2) that the payloader had to go inside the vessel and scoop up a load; (3) that the ramp according to Roland de la Torre, "was not properly put into peak (sic) such that the front line will touch the bottom, particularly will touch the sea . . ."; (4) that "the tires (of the payloader) will be submerged to (sic) the sea"; (5) that according to Sungayan "the ramp of the vessel was moving down"; (6) that the payloader had to be maneuvered by its operator who dumped the load at the side of the vessel; (7) that the dumping of the load changed the stability of the vessel and tilted it to the starboard side; and (8) that the tilting caused the sliding of the cargo toward that side and opened the manhole through which seawater rushed in. 17

Hubart Sungayan, who was the chiefmate of LCT-Josephine and under the employ of TSL/Agustin, also admitted at the trial that it was TSL/Agustin, through its crew, who was in-charge of LCT-Josephine's operations although the responsibility of loading and unloading the cargo was under Larrazabal. Thus, the RTC declared that the "efficient cause of the sinking of the LCT-JOSEPHINE was the improper lowering or positioning of the ramp," which was well within the charge or responsibility of the captain and crew of the vessel. 18 The fallo of the RTC Decision reads:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered as follows:

1.The defendants, Philippine Trigon Shipping Corporation and Roland de la Torre, and the third-party defendant, Agustin de la Torre, shall pay the plaintiff, jointly and severally, the sum of EIGHT HUNDRED FORTY-ONE THOUSAND THREE HUNDRED EIGHTY SIX PESOS AND EIGHTY SIX CENTAVOS (P841,386.86) as the value of the LCT JOSEPHINE with interest thereon at the legal rate of 6% per annum from the date of demand, that is from March 14, 1985, the date when counsel for the defendant Philippine Trigon Shipyard Corporation answered the demand of the plaintiff, until fully paid;

2.The defendants, Philippine Trigon Shipyard Corporation and Roland de la Torre, shall pay to the plaintiff the sum of NINETY THOUSAND PESOS (P90,000.00) as unpaid rentals for the period from May 1, 1984, to November, 1984, and the sum of ONE HUNDRED SEVENTY THOUSAND PESOS (P170,000.00) as lost rentals from December, 1984, to April 30, 1986, with interest on both amounts at the rate of 6% per annum also from demand on March 14, 1985, until fully paid; 

3.The defendants and the third-party defendant shall likewise pay to the plaintiff jointly and severally the sum of TWENTY-FIVE THOUSAND PESOS (P25,000.00) as professional fee of plaintiff's counsel plus FIVE HUNDRED PESOS (P500.00) per appearance of said counsel in connection with actual trial of this case, the number of such appearances to be determined from the records of this case;

4.The defendants' counterclaim for the unpaid balance of plaintiff's obligation for the dry-docking and repair of the vessel LCT JOSEPHINE in the amount of TWENTY-FOUR THOUSAND THREE HUNDRED FOUR PESOS AND THIRTY-FIVE CENTAVOS (P24,304.35), being valid, shall be deducted from the unpaid

18

rentals, with interest on the said unpaid balance at the rate of 6% per annum from the date of the filing of the counter-claim on March 31, 1986; HcaDIA

5.The counter-claim of the defendants in all other respects, for lack of merit, is hereby DISMISSED;

6.The fourth-party complaint against the fourth-party defendant, Ramon Larrazabal, being without basis, is likewise DISMISSED; and

7.The defendants and third-party defendant shall pay the costs.

SO ORDERED. 19

Agustin, PTSC and Roland went to the CA on appeal. The appellate court, in agreement with the findings of the RTC, affirmed its decision in toto.

Still not in conformity with the CA findings against them, Agustin, PTSC and Roland came to this Court through these petitions for review. In G.R. No. 160088, petitioner Agustin raises the following issues:

AGUSTIN'S STATEMENT OF THE ISSUES

I

THE COURT OF APPEALS ERRED IN HOLDING THAT THE PROXIMATE CAUSE OF THE SINKING OF LCT JOSEPHINE IS THE NEGLIGENCE OF THE PETITIONER (Agustin) AND THE RESPONDENTS TRIGON (PTSC) AND DE LA TORRE (Roland).

II

THE COURT OF APPEALS ERRED IN NOT HOLDING RESPONDENT RAMON LARRAZABAL AS SOLELY LIABLE FOR THE LOSS AND SINKING OF LCT JOSEPHINE.

III

THE TRIAL COURT AND THE COURT OF APPEALS GRAVELY ERRED IN TAKING JUDICIAL NOTICE OF THE CHARACTERISTICS OF THE LCT JOSEPHINE AND PAYLOADER WITHOUT INFORMING THE PARTIES OF THEIR INTENTION.

IV

THE COURT OF APPEALS ERRED IN HOLDING PETITIONER DIRECTLY AND SOLIDARILY LIABLE WITH THE RESPONDENTS TRIGON AND DE LA TORRE DESPITE THE FACT THAT SUCH KIND OF LIABILITY IS NOT DULY ALLEGED IN THE COMPLAINT OF RESPONDENT CONCEPCION AND NOT ONE OF THE ISSUES TRIED BY THE PARTIES.

V

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS LIABLE BASED ON CULPA CONTRACTUAL.

VI

19

THE COURT OF APPEALS ERRED IN NOT EXCULPATING PETITIONER FROM LIABILITY BASED ON THE LIMITED LIABILITY RULE.

VII

THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS OF THE CODE OF COMMERCE ON THE LIABILITY OF THE SHIP CAPTAIN. 20

On the other hand, in G.R. No. 160565, PTSC and Roland submit the following issues:

PTSC and ROLAND'S STATEMENT OF THE ISSUES

I.

DID THE HONORABLE COURT OF APPEALS ERRxx IN APPLYING THE PROVISIONS OF THE CIVIL CODE OF THE PHILIPPINES PARTICULARLY ON CONTRACTS, LEASE, QUASI-DELICT AND DAMAGES INSTEAD OF THE PROVISIONS OF THE CODE OF COMMERCE ON MARITIME COMMERCE IN ADJUDGING PETITIONERS LIABLE TO PRIVATE RESPONDENT CONCEPCION.

II.

DID THE HONORABLE COURT OF APPEALS ERRxx IN UPHOLDING THE FINDINGS OF FACT OF THE TRIAL COURT.

III.

DID THE HONORABLE COURT OF APPEALS COMMITxx GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF ITS JURISDICTION IN APPRECIATING THE FACTS OF THE CASE.

IV.

DID THE HONORABLE COURT OF APPEALS, IN ADJUDGING PETITIONERS JOINTLY AND SEVERALLY LIABLE WITH RESPONDENT AGUSTIN DE LA TORRE, ERRxx WHEN IT MADE FINDINGS OF FACT AND CONCLUSIONS OF LAW WHICH ARE BEYOND THE ISSUES SET FORTH AND CONTEMPLATED IN THE ORIGINAL PLEADINGS OF THE PARTIES. 21

From the foregoing, the issues raised in the two petitions can be categorized as: (1) those referring to the factual milieu of the case; (2) those concerning the applicability of the Code of Commerce, more specifically, the Limited Liability Rule; and (3) the question on the solidary liability of the petitioners.

As regards the issues requiring a review of the factual findings of the trial court, the Court finds no compelling reason to deviate from the rule that findings of fact of a trial judge, especially when affirmed by the appellate court, are binding before this Court. 22 The CA, in reviewing the findings of the RTC, made these observations:

We are not persuaded that the trial Court finding should be set aside. The Court   a quo   sifted through the records and arrived at the fact that clearly, there was improper lowering or positioning of the ramp, which was not at "peak," according to de la Torre and "moving down" according to Sungayan when the payloader entered and scooped up a load of sand and gravel. Because of this, the payloader was in danger of being lost ('submerged') and caused Larrazabal to order the operator to go back into the vessel, according to de la Torre's version, or back off to the shore, per Sungayan. Whichever it

20

was, the fact remains that the ramp was unsteady (moving) and compelled action to save the payloader from submerging, especially because of the conformation of the sea and the shore. . . . .

xxx xxx xxx

The contract executed on June 20, 1984, between plaintiff-appellee and defendants-appellants showed that the services of the crew of the owner of the vessel were terminated. This allowed the charterer, defendants-appellants, to employ their own. The sub-charter contract between defendants-appellants Philippine Trigon Shipyard Corp. and third-party defendant-appellant Trigon Shipping Lines showed similar provision where the crew of Philippine Trigon had to be terminated or rehired by Trigon Shipping Lines. As to the agreement with fourth-party Larrazabal, it is silent on who would hire the crew of the vessel. Clearly, the crew manning the vessel when it sunk belonged to third-party defendant-appellant. Hubart Sungayan, the acting Chief Mate, testified that he was hired by Agustin de la Torre, who in turn admitted to hiring the crew. The actions of fourth-party defendant, Larrazabal and his payloader operator did not include the operation of docking where the problem arose. 23 [Underscoring supplied]

Similarly, the Court has examined the records at hand and completely agree with the CA that the factual findings of the RTC are in order.

With respect to petitioners' position that the Limited Liability Rule under the Code of Commerce should be applied to them, the argument is misplaced. The said rule has been explained to be that of the real and hypothecary doctrine in maritime law where the shipowner or ship agent's liability is held as merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. 24 In this jurisdiction, this rule is provided in three articles of the Code of Commerce. These are: SIAEHC

Art. 587.The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may have earned during the voyage.

xxx xxx xxx

Art. 590.The co-owners of the vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the acts of the captain referred to in Art. 587.

Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging to him.

xxx xxx xxx

Art. 837.The civil liability incurred by shipowners in the case prescribed in this section, shall be understood as limited to the value of the vessel with all its appurtenances and freightage served during the voyage.

Article 837 specifically applies to cases involving collision which is a necessary consequence of the right to abandon the vessel given to the shipowner or ship agent under the first provision — Article 587. Similarly, Article 590 is a reiteration of Article 587, only this time the situation is that the vessel is co-owned by several persons. 25 Obviously, the forerunner of the Limited Liability Rule under the Code of Commerce is Article 587. Now, the latter is quite clear on which indemnities may be confined or restricted to the value of the vessel pursuant to the said Rule, and these are the — "indemnities in favor of third persons which may arise from the conduct of

21

the captain in the care of the goods which he loaded on the vessel." Thus, what is contemplated is the liability to third persons who may have dealt with the shipowner, the agent or even the charterer in case of demise or bareboat charter.

The only person who could avail of this is the shipowner, Concepcion. He is the very person whom the Limited Liability Rule has been conceived to protect. The petitioners cannot invoke this as a defense. In Yangco v. Laserna, 26 this Court, through Justice Moran, wrote:

The policy which the rule is designed to promote is the encouragement of shipbuilding and investment in maritime commerce.

xxx xxx xxx.

'Grotius, in his law of War and Peace, says that men would be deterred from investing in ships if they thereby incurred the apprehension of being rendered liable to an indefinite amount by the acts of the master, . . . .' 27

Later, in the case of Monarch Insurance Co., Inc. v. CA, 28 this Court, this time through Justice Sabino R. De Leon, Jr., again explained:

'No vessel, no liability,' expresses in a nutshell the limited liability rule. The shipowner's or agent's liability is merely coextensive with his interest in the vessel such that a total loss thereof results in its extinction. The total destruction of the vessel extinguishes maritime liens because there is no longer any res to which it can attach. This doctrine is based on the real and hypothecary nature of maritime law which has its origin in the prevailing conditions of the maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against these adverse conditions and to encourage shipbuilding and maritime commerce, it was deemed necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance, if any. 29  

In view of the foregoing, Concepcion as the real shipowner is the one who is supposed to be supported and encouraged to pursue maritime commerce. Thus, it would be absurd to apply the Limited Liability Rule against him who, in the first place, should be the one benefitting from the said rule. In distinguishing the rights between the charterer and the shipowner, the case of Yueng Sheng Exchange and Trading Co. v. Urrutia & Co. 30 is most enlightening. In that case, no less than Chief Justice Arellano wrote:

The whole ground of this assignment of errors rests on the proposition advanced by the appellant company that 'the charterer of a vessel, under the conditions stipulated in the charter party in question, is the owner pro hac vice of the ship and takes upon himself the responsibilities of the owner.' HCaIDS

xxx xxx xxx

If G. Urrutia & Co., by virtue of the above-mentioned contract, became the agents of the Cebu, then they must respond for the damages claimed, because the owner and the agent are civilly responsible for the acts of the captain.

But G. Urrutia & Co. could not in any way exercise the powers or rights of an agent. They could not represent the ownership of the vessel, nor could they, in their own name and in such capacity, take judicial or extrajudicial steps in all that relates to commerce; thus if the   Cebu   were attached, they would have no legal capacity to proceed to secure its release; speaking generally, not even the fines could or ought to be paid by them, unless such fines were occasioned by their orders. . . . .

22

The contract executed by Smith, Bell & Co., as agents for the Cebu, and G. Urrutia & Co., as charterers of the vessel, did not put the latter in the place of the former, nor make them agents of the owner or owners of the vessel. With relation to those agents, they retained opposing rights derived from the charter party of the vessel, and at no time could they be regarded by the third parties, or by the authorities, or by the courts, as being in the place of the owners or the agents in matters relating to the responsibilities pertaining to the ownership and possession of the vessel. . . . . 31

In Yueng Sheng, it was further stressed that the charterer does not completely and absolutely step into the shoes of the shipowner or even the ship agent because there remains conflicting rights between the former and the real shipowner as derived from their charter agreement. The Court again quotes Chief Justice Arellano:

Their (the charterer's) possession was, therefore, the uncertain title of lease, not a possession of the owner, such as is that of the agent, who is fully subrogated to the place of the owner in regard to the dominion, possession, free administration, and navigation of the vessel. 32

Therefore, even if the contract is for a bareboat or demise charter where possession, free administration and even navigation are temporarily surrendered to the charterer, dominion over the vessel remains with the shipowner. Ergo, the charterer or the sub-charterer, whose rights cannot rise above that of the former, can never set up the Limited Liability Rule against the very owner of the vessel. Borrowing the words of Chief Justice Artemio V. Panganiban, "Indeed, where the reason for the rule ceases, the rule itself does not apply." 33

The Court now comes to the issue of the liability of the charterer and the sub-charterer.

In the present case, the charterer and the sub-charterer through their respective contracts of agreement/charter parties, obtained the use and service of the entireLCT-Josephine. The vessel was likewise manned by the charterer and later by the sub-charterer's people. With the complete and exclusive relinquishment of possession, command and navigation of the vessel, the charterer and later the sub-charterer became the vessel's owner pro hac vice. Now, and in the absence of any showing that the vessel or any part thereof was commercially offered for use to the public, the above agreements/charter parties are that of a private carriage where the rights of the contracting parties are primarily defined and governed by the stipulations in their contract. 34

Although certain statutory rights and obligations of charter parties are found in the Code of Commerce, these provisions as correctly pointed out by the RTC, are not applicable in the present case. Indeed, none of the provisions found in the Code of Commerce deals with the specific rights and obligations between the real shipowner and the charterer obtaining in this case. Necessarily, the Court looks to the New Civil Code to supply the deficiency. 35 Thus, the RTC and the CA were both correct in applying the statutory provisions of the New Civil Code in order to define the respective rights and obligations of the opposing parties.

Thus, Roland, who, in his personal capacity, entered into the Preliminary Agreement with Concepcion for the dry-docking and repair of LCT-Josephine, is liable under Article 1189 36 of the New Civil Code. There is no denying that the vessel was not returned to Concepcion after the repairs because of the provision in the Preliminary Agreement that the same "should" be used by Roland for the first two years. Before the vessel could be returned, it was lost due to the negligence of Agustin to whom Roland chose to sub-charter or sublet the vessel.

23

PTSC is liable to Concepcion under Articles 1665 37 and 1667 38 of the New Civil Code. As the charterer or lessee under the Contract of Agreement dated June 20, 1984, PTSC was contract-bound to return the thing leased and it was liable for the deterioration or loss of the same. DcSACE

Agustin, on the other hand, who was the sub-charterer or sub-lessee of LCT-Josephine, is liable under Article 1651 of the New Civil Code. 39 Although he was never privy to the contract between PTSC and Concepcion, he remained bound to preserve the chartered vessel for the latter. Despite his non-inclusion in the complaint of Concepcion, it was deemed amended so as to include him because, despite or in the absence of that formality of amending the complaint to include him, he still had his day in court 40 as he was in fact impleaded as a third-party defendant by his own son, Roland — the very same person who represented him in the Contract of Agreement with Larrazabal.

(S)ince the purpose of formally impleading a party is to assure him a day in court, once the protective mantle of due process of law has in fact been accorded a litigant, whatever the imperfection in form, the real litigant may be held liable as a party. 41

In any case, all three petitioners are liable under Article 1170 of the New Civil Code. 42 The necessity of insuring the LCT-Josephine, regardless of who will share in the payment of the premium, is very clear under the Preliminary Agreement and the subsequent Contracts of Agreement dated June 20, 1984 and August 1, 1984, respectively. The August 17, 1984 letter of Concepcion's representative, Rogelio L. Martinez, addressed to Roland in his capacity as the president of PTSC inquiring about the insurance of the LCT-Josephine as well as reiterating the importance of insuring the said vessel is quite telling.

August 17, 1984

Mr. Roland de la Torre

President

Phil. Trigon Shipyard Corp.

Cebu City

Dear Sir:

In connection with your chartering of LCT JOSEPHINE effect[ive] May 1, 1984, I wish to inquire regarding the insurance of said vessel to wit:

1.Name of Insurance Company

2.Policy No.

3.Amount of Premiums

4.Duration of coverage already paid

Please send a Xerox copy of policy to the undersigned as soon as possible.

In no case shall LCT JOSEPHINE sail without any insurance coverage.

Hoping for your (prompt) action on this regard.

24

Truly yours,

(sgd.) ROGELIO L. MARTINEZOwner's representative 43

Clearly, the petitioners, to whom the possession of LCT Josephine had been entrusted as early as the time when it was dry-docked for repairs, were obliged to insure the same. Unfortunately, they failed to do so in clear contravention of their respective agreements. Certainly, they should now all answer for the loss of the vessel. aCTcDH

WHEREFORE, the petitions are DENIED.

SO ORDERED.

Carpio, * Velasco, Jr., Abad and Sereno, ** JJ., concur.

[G.R. No. 150751. September 20, 2004.]

CENTRAL SHIPPING COMPANY, INC., petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA, respondent.

D E C I S I O N

PANGANIBAN, J p:

A common carrier is presumed to be at fault or negligent. It shall be liable for the loss, destruction or deterioration of its cargo, unless it can prove that the sole and proximate cause of such event is one of the causes enumerated in Article 1734 of the Civil Code, or that it exercised extraordinary diligence to prevent or minimize the loss. In the present case, the weather condition encountered by petitioner's vessel was not a "storm" or a natural disaster comprehended in the law. Given the known weather condition prevailing during the voyage, the manner of stowage employed by the carrier was insufficient to secure the cargo from the rolling action of the sea. The carrier took a calculated risk in improperly securing the cargo. Having lost that risk, it cannot now disclaim any liability for the loss.

The Case

Before the Court is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to reverse and set aside the March 23, 2001 Decision 2 of the Court of Appeals (CA) in CA-GR CV No. 48915. The assailed Decision disposed as follows:

"WHEREFORE, the decision of the Regional Trial Court of Makati City, Branch 148 dated August 4, 1994 is hereby MODIFIED in so far as the award of attorney's fees is DELETED. The decision is AFFIRMED in all other respects." 3

The CA denied petitioner's Motion for Reconsideration in its November 7, 2001 Resolution. 4

The Facts

25

The factual antecedents, summarized by the trial court and adopted by the appellate court, are as follows:

"On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board its vessel, the M/V 'Central Bohol', 376 pieces [of] Philippine Apitong Round Logs and undertook to transport said shipment to Manila for delivery to Alaska Lumber Co., Inc.

"The cargo was insured for P3,000,000.00 against total loss under [respondent's] Marine Cargo Policy No. MCPB-00170.

"On July 25, 1990, upon completion of loading of the cargo, the vessel left Palawan and commenced the voyage to Manila.

"At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed about 10 degrees starboardside, due to the shifting of logs in the hold.

"At about 0128 hours, after the listing of the vessel had increased to 15 degrees, the ship captain ordered his men to abandon ship and at about 0130 hours of the same day the vessel completely sank. Due to the sinking of the vessel, the cargo was totally lost.

"[Respondent] alleged that the total loss of the shipment was caused by the fault and negligence of the [petitioner] and its captain and as direct consequence thereof the consignee suffered damage in the sum of P3,000,000.00.

"The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the shipment to the [petitioner] but the latter failed and refused to settle the claim, hence [respondent], being the insurer, paid said claim and now seeks to be subrogated to all the rights and actions of the consignee as against the [petitioner].

"[Petitioner], while admitting the sinking of the vessel, interposed the defense that the vessel was fully manned, fully equipped and in all respects seaworthy; that all the logs were properly loaded and secured; that the vessel's master exercised due diligence to prevent or minimize the loss before, during and after the occurrence of the storm.

"It raised as its main defense that the proximate and only cause of the sinking of its vessel and the loss of its cargo was a natural disaster, a tropical storm which neither [petitioner] nor the captain of its vessel could have foreseen." 5

The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by the weather or any other caso fortuito. It noted that monsoons, which were common occurrences during the months of July to December, could have been foreseen and provided for by an ocean-going vessel. Applying the rule of presumptive fault or negligence against the carrier, the trial court held petitioner liable for the loss of the cargo. Thus, the RTC deducted the salvage value of the logs in the amount of P200,000 from the principal claim of respondent and found that the latter was entitled to be subrogated to the rights of the insured. The court a quodisposed as follows:

"WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent] and against the [petitioner] ordering the latter to pay the following:

1)the amount of P2,800,000.00 with legal interest thereof from the filing of this complaint up to and until the same is fully paid;

2)P80,000.00 as and for attorney's fees;

3)Plus costs of suit." 6

26

Ruling of the Court of Appeals

The CA affirmed the trial court's finding that the southwestern monsoon encountered by the vessel was not unforeseeable. Given the season of rains and monsoons, the ship captain and his crew should have anticipated the perils of the sea. The appellate court further held that the weather disturbance was not the sole and proximate cause of the sinking of the vessel, which was also due to the concurrent shifting of the logs in the hold that could have resulted only from improper stowage. Thus, the carrier was held responsible for the consequent loss of or damage to the cargo, because its own negligence had contributed thereto.

The CA found no merit in petitioner's assertion of the vessel's seaworthiness. It held that the Certificates of Inspection and Drydocking were not conclusive proofs thereof. In order to consider a vessel to be seaworthy, it must be fit to meet the perils of the sea.

Found untenable was petitioner's insistence that the trial court should have given greater weight to the factual findings of the Board of Marine Inquiry (BMI) in the investigation of the Marine Protest filed by the ship captain, Enriquito Cahatol. The CA further observed that what petitioner had presented to the court a quo were mere excerpts of the testimony of Captain Cahatol given during the course of the proceedings before the BMI, not the actual findings and conclusions of the agency. Citing Arada v. CA, 7 it said that findings of the BMI were limited to the administrative liability of the owner/operator, officers and crew of the vessel. However, the determination of whether the carrier observed extraordinary diligence in protecting the cargo it was transporting was a function of the courts, not of the BMI.

The CA concluded that the doctrine of limited liability was not applicable, in view of petitioner's negligence — particularly its improper stowage of the logs.

Hence, this Petition. 8

Issues

In its Memorandum, petitioner submits the following issues for our consideration:

"(i)Whether or not the weather disturbance which caused the sinking of the vessel M/V Central Bohol was a fortuitous event.

"(ii)Whether or not the investigation report prepared by Claimsmen Adjustment Corporation is hearsay evidence under Section 36, Rule 130 of the Rules of Court.

"(iii)Whether or not the finding of the Court of Appeals that 'the logs in the hold shifted and such shifting could only be due to improper stowage' has a valid and factual basis.

"(iv)Whether or not M/V Central Bohol is seaworthy.

"(v)Whether or not the Court of Appeals erred in not giving credence to the factual finding of the Board of Marine Inquiry (BMI), an independent government agency tasked to conduct inquiries on maritime accidents.

"(vi)Whether or not the Doctrine of Limited Liability is applicable to the case at bar." 9

The issues boil down to two: (1) whether the carrier is liable for the loss of the cargo; and (2) whether the doctrine of limited liability is applicable. These issues involve a determination of factual questions of whether the loss of the cargo was due to the occurrence of a natural

27

disaster; and if so, whether its sole and proximate cause was such natural disaster or whether petitioner was partly to blame for failing to exercise due diligence in the prevention of that loss.

The Court's Ruling

The Petition is devoid of merit.

First Issue:Liability for Lost Cargo

From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence over the goods they transport, according to all the circumstances of each case. 10 In the event of loss, destruction or deterioration of the insured goods, common carriers are responsible; that is, unless they can prove that such loss, destruction or deterioration was brought about — among others — by "flood, storm, earthquake, lightning or other natural disaster or calamity." 11 In all other cases not specified under Article 1734 of the Civil Code, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence. 12

In the present case, petitioner disclaims responsibility for the loss of the cargo by claiming the occurrence of a "storm" under Article 1734(1). It attributes the sinking of its vessel solely to the weather condition between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990.

At the outset, it must be stressed that only questions of law 13 may be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. Questions of fact are not proper subjects in this mode of appeal, 14 for "[t]he Supreme Court is not a trier of facts." 15 Factual findings of the CA may be reviewed on appeal 16only under exceptional circumstances such as, among others, when the inference is manifestly mistaken, 17 the judgment is based on a misapprehension of facts, 18or the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify a different conclusion. 19

In the present case, petitioner has not given the Court sufficient cogent reasons to disturb the conclusion of the CA that the weather encountered by the vessel was not a "storm" as contemplated by Article 1734(1). Established is the fact that between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central Boholencountered a southwestern monsoon in the course of its voyage.

The Note of Marine Protest, 20 which the captain of the vessel issued under oath, stated that he and his crew encountered a southwestern monsoon about 2200 hours on July 25, 1990, and another monsoon about 2400 hours on July 26, 1990. Even petitioner admitted in its Answer that the sinking of M/V Central Bohol had been caused by the strong southwest monsoon. 21 Having made such factual representation, it cannot now be allowed to retreat and claim that the southwestern monsoon was a "storm."

The pieces of evidence with respect to the weather conditions encountered by the vessel showed that there was a southwestern monsoon at the time. Normally expected on sea voyages, however, were such monsoons, during which strong winds were not unusual. Rosa S. Barba, weather specialist of the Philippine Atmospheric Geophysical and Astronomical Services Administration (PAGASA), testified that a thunderstorm might occur in the midst of a southwest monsoon. According to her, one did occur between 8:00 p.m. on July 25, 1990, and 2 a.m. on July 26, 1990, as recorded by the PAGASA Weather Bureau. 22

28

Nonetheless, to our mind it would not be sufficient to categorize the weather condition at the time as a "storm" within the absolutory causes enumerated in the law. Significantly, no typhoon was observed within the Philippine area of responsibility during that period. 23

According to PAGASA, a storm has a wind force of 48 to 55 knots, 24 equivalent to 55 to 63 miles per hour or 10 to 11 in the Beaufort Scale. The second mate of the vessel stated that the wind was blowing around force 7 to 8 on the Beaufort Scale. 25 Consequently, the strong winds accompanying the southwestern monsoon could not be classified as a "storm." Such winds are the ordinary vicissitudes of a sea voyage. 26

Even if the weather encountered by the ship is to be deemed a natural disaster under Article 1739 of the Civil Code, petitioner failed to show that such natural disaster or calamity was the proximate and only cause of the loss. Human agency must be entirely excluded from the cause of injury or loss. In other words, the damaging effects blamed on the event or phenomenon must not have been caused, contributed to, or worsened by the presence of human participation. 27 The defense of fortuitous event or natural disaster cannot be successfully made when the injury could have been avoided by human precaution. 28

Hence, if a common carrier fails to exercise due diligence — or that ordinary care that the circumstances of the particular case demand — to prevent or minimize the loss before, during and after the occurrence of the natural disaster, the carrier shall be deemed to have been negligent. The loss or injury is not, in a legal sense, due to a natural disaster under Article 1734(1). 29

We also find no reason to disturb the CA's finding that the loss of the vessel was caused not only by the southwestern monsoon, but also by the shifting of the logs in the hold. Such shifting could been due only to improper stowage. The assailed Decision stated:

"Notably, in Master Cahatol's account, the vessel encountered the first southwestern monsoon at about 1[0]:00 in the evening. The monsoon was coupled with heavy rains and rough seas yet the vessel withstood the onslaught. The second monsoon attack occurred at about 12:00 midnight. During this occasion, the master 'felt' that the logs in the hold shifted, prompting him to order second mate Percival Dayanan to look at the bodega. Complying with the captain's order, 2nd mate Percival Dayanan found that there was seawater in the bodega. 2nd mate Dayanan's account was:

'14.TKung inyo pong natatandaan ang mga pangyayari, maari mo bang isalaysay ang naganap na paglubog sa barkong M/V Central Bohol?

'SOpo, noong ika-26 ng Julio 1990 humigit kumulang alas 1:20 ng umaga (dst) habang kami ay nagnanabegar patungong Maynila sa tapat ng Cadlao Island at Cauayan Island sakop ng El Nido, Palawan, inutusan ako ni Captain Enriquito Cahatol na tingnan ko ang bodega; nang ako ay nasa bodega, nakita ko ang loob nang bodega na maraming tubig at naririnig ko ang malakas na agos ng tubig-dagat na pumapasok sa loob ng bodega ng barko; agad bumalik ako kay Captain Enriquito Cahatol at sinabi ko ang malakas na pagpasok ng tubig-dagat sa loob nang bodega ng barko na ito ay naka-tagilid humigit kumulang sa 020 degrees, nag-order si Captain Cahatol na standby engine at tinawag ang lahat ng mga officials at mga crew nang maipon kaming lahat ang barko ay naka-tagilid at ito ay tuloy-tuloy ang pagtatagilid na ang ilan sa mga officials ay naka-hawak na sa barandilla ng barko at di-nagtagal sumigaw nang ABANDO[N] SHIP si Captain Cahatol at kami ay nagkanya-kanya nang talunan at languyan sa dagat na malakas ang alon at nang ako ay lumingon sa barko ito ay di ko na nakita.'

"Additionally, [petitioner's] own witnesses, boatswain Eduardo Viñas Castro and oiler Frederick Perena, are one in saying that the vessel encountered two weather disturbances,

29

one at around 10 o'clock to 11 o'clock in the evening and the other at around 12 o'clock midnight. Both disturbances were coupled with waves and heavy rains, yet, the vessel endured the first and not the second. Why? The reason is plain. The vessel felt the strain during the second onslaught because the logs in the bodega shifted and there were already seawater that seeped inside." 30

The above conclusion is supported by the fact that the vessel proceeded through the first southwestern monsoon without any mishap, and that it began to list only during the second monsoon immediately after the logs had shifted and seawater had entered the hold. In the hold, the sloshing of tons of water back and forth had created pressures that eventually caused the ship to sink. Had the logs not shifted, the ship could have survived and reached at least the port of El Nido. In fact, there was another motor launch that had been buffeted by the same weather condition within the same area, yet it was able to arrive safely at El Nido. 31

In its Answer, petitioner categorically admitted the allegation of respondent in paragraph 5 of the latter's Complaint "[t]hat at about 0125 hours on 26 July 1990, while enroute to Manila, the M/V 'Central Bohol' listed about 10 degrees starboardside, due to the shifting of logs in the hold." Further petitioner averred that "[t]he vessel, while navigating through this second southwestern monsoon, was under extreme stress. At about 0125 hours, 26 July 1990, a thud was heard in the cargo hold and the logs therein were felt to have shifted. The vessel thereafter immediately listed by ten (10) degrees starboardside." 32

Yet, petitioner now claims that the CA's conclusion was grounded on mere speculations and conjectures. It alleges that it was impossible for the logs to have shifted, because they had fitted exactly in the hold from the port to the starboard side.

After carefully studying the records, we are inclined to believe that the logs did indeed shift, and that they had been improperly loaded.

According to the boatswain's testimony, the logs were piled properly, and the entire shipment was lashed to the vessel by cable wire. 33 The ship captain testified that out of the 376 pieces of round logs, around 360 had been loaded in the lower hold of the vessel and 16 on deck. The logs stored in the lower hold were not secured by cable wire, because they fitted exactly from floor to ceiling. However, while they were placed side by side, there were unavoidable clearances between them owing to their round shape. Those loaded on deck were lashed together several times across by cable wire, which had a diameter of 60 millimeters, and were secured from starboard to port. 34

It is obvious, as a matter of common sense, that the manner of stowage in the lower hold was not sufficient to secure the logs in the event the ship should roll in heavy weather. Notably, they were of different lengths ranging from 3.7 to 12.7 meters. 35 Being clearly prone to shifting, the round logs should not have been stowed with nothing to hold them securely in place. Each pile of logs should have been lashed together by cable wire, and the wire fastened to the side of the hold. Considering the strong force of the wind and the roll of the waves, the loose arrangement of the logs did not rule out the possibility of their shifting. By force of gravity, those on top of the pile would naturally roll towards the bottom of the ship.

The adjuster's Report, which was heavily relied upon by petitioner to strengthen its claim that the logs had not shifted, stated that "the logs were still properly lashed by steel chains on deck." Parenthetically, this statement referred only to those loaded on deck and did not mention anything about the condition of those placed in the lower hold. Thus, the finding of the surveyor that the logs were still intact clearly pertained only to those lashed on deck.

30

The evidence indicated that strong southwest monsoons were common occurrences during the month of July. Thus, the officers and crew of M/V Central Bohol should have reasonably anticipated heavy rains, strong winds and rough seas. They should then have taken extra precaution in stowing the logs in the hold, in consonance with their duty of observing extraordinary diligence in safeguarding the goods. But the carrier took a calculated risk in improperly securing the cargo. Having lost that risk, it cannot now escape responsibility for the loss.

Second Issue:Doctrine of Limited Liability

The doctrine of limited liability under Article 587 of the Code of Commerce 36 is not applicable to the present case. This rule does not apply to situations in which the loss or the injury is due to the concurrent negligence of the shipowner and the captain. 37 It has already been established that the sinking of M/V Central Bohol had been caused by the fault or negligence of the ship captain and the crew, as shown by the improper stowage of the cargo of logs. "Closer supervision on the part of the shipowner could have prevented this fatal miscalculation." 38 As such, the shipowner was equally negligent. It cannot escape liability by virtue of the limited liability rule.

WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution AFFIRMED. Costs against petitioner.

SO ORDERED.

Sandoval-Gutierrez and Corona, JJ ., concur.

Carpio Morales, J ., is on official leave.

[G.R. No. 121833. October 17, 2008.]

ABOITIZ SHIPPING CORPORATION, petitioner, vs. COURT OF APPEALS, MALAYAN INSURANCE COMPANY, INC., COMPAGNIE MARITIME DES CHARGEURS REUNIS, and F.E. ZUELLIG (M), INC., respondents.

[G.R. No. 130752. October 17, 2008.]

ABOITIZ SHIPPING CORPORATION, petitioner, vs. COURT OF APPEALS, THE HON. JUDGE REMEGIO E. ZARI, in his capacity as Presiding Judge of the RTC, Branch 20; ASIA TRADERS INSURANCE CORPORATION, and ALLIED GUARANTEE INSURANCE CORPORATION, respondents.

[G.R. No. 137801. October 17, 2008.]

ABOITIZ SHIPPING CORPORATION, petitioner, vs. EQUITABLE INSURANCE CORPORATION, respondent.

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D E C I S I O N

TINGA, J p:

Before this Court are three consolidated Rule 45 petitions all involving the issue of whether the real and hypothecary doctrine may be invoked by the shipowner in relation to the loss of cargoes occasioned by the sinking of M/V P. Aboitiz on 31 October 1980. The petitions filed by Aboitiz Shipping Corporation (Aboitiz) commonly seek the computation of its liability in accordance with the Court's pronouncement in Aboitiz Shipping Corporation v. General Accident Fire and Life Assurance Corporation, Ltd. 1 (hereafter referred to as "the 1993 GAFLAC case"). TEcAHI

The three petitions stemmed from some of the several suits filed against Aboitiz before different regional trial courts by shippers or their successors-in-interest for the recovery of the monetary value of the cargoes lost, or by the insurers for the reimbursement of whatever they paid. The trial courts awarded to various claimants the amounts of P639,862.02, P646,926.30, and P87,633.81 in G.R. Nos. 121833, 130752 and 137801, respectively.

ANTECEDENTSG.R. No.   121833

Respondent Malayan Insurance Company, Inc. (Malayan) filed five separate actions against several defendants for the collection of the amounts of the cargoes allegedly paid by Malayan under various marine cargo policies 2 issued to the insurance claimants. The five civil cases, namely, Civil Cases No. 138761, No. 139083, No. 138762, No. R-81-526 and No. 138879, were consolidated and heard before the Regional Trial Court (RTC) of Manila, Branch 54.

The defendants in Civil Case No. 138761 and in Civil Case No. 139083 were Malayan International Shipping Corporation, a foreign corporation based in Malaysia, its local ship agent, Litonjua Merchant Shipping Agency (Litonjua), and Aboitiz. The defendants in Civil Case No. 138762 were Compagnie Maritime des Chargeurs Reunis (CMCR), its local ship agent, F.E. Zuellig (M), Inc. (Zuellig), and Aboitiz. Malayan also filed Civil Case No. R-81-526 only against CMCR and Zuellig. Thus, defendants CMCR and Zuellig filed a third-party complaint against Aboitiz. In the fifth complaint docketed as Civil Case No. 138879, only Aboitiz was impleaded as defendant. cISAHT

The shipments were supported by their respective bills of lading and insured separately by Malayan against the risk of loss or damage. In the five consolidated cases, Malayan sought the recovery of amounts totaling P639,862.02.

Aboitiz raised the defenses of lack of jurisdiction, lack of cause of action and prescription. It also claimed that M/V P. Aboitiz was seaworthy, that it exercised extraordinary diligence and that the loss was caused by a fortuitous event. IDTSEH

After trial on the merits, the RTC of Manila rendered a Decision dated 27 November 1989, adjudging Aboitiz liable on the money claims. The decretal portion reads:

WHEREFORE, judgment is hereby rendered as follows:

1.In Civil Case No. 138072 (R-81-526-CV), the defendants are adjudged liable and ordered to pay to the plaintiffs jointly and severally the amount of P128,896.79; the third-party defendant Aboitiz is adjudged liable to reimburse and ordered to pay the defendants or whosoever of them paid the plaintiff up to the said amount; IDCcEa

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2.In Civil Case No. 138761, Aboitiz is adjudged liable and ordered to pay plaintiff the amount of One Hundred Sixty Three-Thousand Seven Hundred Thirteen Pesos and Thirty-Eight Centavos (P163,713.38).

3.In Civil Case No. 138762, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the sum of Seventy Three Thousand Five Hundred Sixty-Nine Pesos and Ninety-Four Centavos (P73,569.94); and Sixty-Four Thousand Seven Hundred Four Pesos and Seventy-Seven Centavos (P64,704.77);

4.In Civil Case No. 139083, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the amount of One Hundred Fifty-Six Thousand Two Hundred Eighty-Seven Pesos and Sixty-Four Centavos (P156,287.64); HTDCAS

In Civil Case No. 138879, defendant Aboitiz is adjudged liable and ordered to pay plaintiff the amount of Fifty-Two Thousand Six Hundred Eighty-Nine Pesos and Fifty Centavos (P52,689.50).

All the aforesaid award shall bear interest at the legal rate from the filing of the respective complaints. Considering that there is no clear showing that the cases fall under Article 2208, Nos. 4 and 5, of the Civil Code, and in consonance with the basic rule that there be no penalty (in terms of attorney's fees) imposed on the right to litigate, no damages by way of attorney's fees are awarded; however, costs of the party/parties to whom judgment awards are made shall be made by the party ordered to pay the said judgment awards.

SO ORDERED. 3

Aboitiz, CMCR and Zuellig appealed the RTC decision to the Court of Appeals. The appeal was docketed as CA-G.R. SP No. 35975-CV. During the pendency of the appeal, the Court promulgated the decision in the 1993 GAFLAC case. IDTcHa

On 31 March 1995, the Court of Appeals (Ninth Division) affirmed the RTC decision. It disregarded Aboitiz's argument that the sinking of the vessel was caused by aforce majeure, in view of this Court's finding in a related case, Aboitiz Shipping Corporation v. Court of Appeals, et al. (the 1990 GAFLAC case). 4 In said case, this Court affirmed the Court of Appeals' finding that the sinking of M/V P. Aboitiz was caused by the negligence of its officers and crew. It is one of the numerous collection suits against Aboitiz, which eventually reached this Court in connection with the sinking of M/V P. Aboitiz.

As to the computation of Aboitiz's liability, the Court of Appeals again based its ruling on the 1990 GAFLAC case that Aboitiz's liability should be based on the declared value of the shipment in consonance with the exceptional rule under Section 4 (5) 5 of the Carriage of Goods by Sea Act. CETDHA

Aboitiz moved for reconsideration 6 to no avail. Hence, it filed this petition for review on certiorari docketed as G.R. No. 121833. 7 The instant petition is based on the following grounds:

THE COURT OF APPEALS SHOULD HAVE LIMITED THE RECOVERABLE AMOUNT FROM ASC TO THAT AMOUNT STIPULATED IN THE BILL OF LADING.

IN THE ALTERNATIVE, THE COURT OF APPEALS SHOULD HAVE FOUND THAT THE TOTAL LIABILITY OF ASC IS LIMITED TO THE VALUE OF THE VESSEL OR THE INSURANCE PROCEEDS THEREOF. 8

33

On 4 December 1995, the Court issued a Resolution 9 denying the petition. Aboitiz moved for reconsideration, arguing that the limited liability doctrine enunciated in the 1993 GAFLAC case should be applied in the computation of its liability. In the Resolution 10 dated 6 March 1996, the Court granted the motion and ordered the reinstatement of the petition and the filing of a comment. STHDAc

G.R. No. 130752

Respondents Asia Traders Insurance Corporation (Asia Traders) and Allied Guarantee Insurance Corporation (Allied) filed separate actions for damages against Aboitiz to recover by way of subrogation the value of the cargoes insured by them and lost in the sinking of the vessel M/V P. Aboitiz. The two actions were consolidated and heard before the RTC of Manila, Branch 20.

Aboitiz reiterated the defense of force majeure. The trial court rendered a decision 11 on 25 April 1990 ordering Aboitiz to pay damages in the amount of P646,926.30. Aboitiz sought reconsideration, arguing that the trial court should have considered the findings of the Board of Marine Inquiry that the sinking of the M/V P. Aboitizwas caused by a typhoon and should have applied the real and hypothecary doctrine in limiting the monetary award in favor of the claimants. The trial court denied Aboitiz's motion for reconsideration. SEcTHA

Aboitiz elevated the case to the Court of Appeals. While the appeal was pending, this Court promulgated the decision in the 1993 GAFLAC case. The Court of Appeals subsequently rendered a decision on 30 May 1994, affirming the RTC decision. 12

Aboitiz appealed the Court of Appeals decision to this Court. 13 In a Resolution dated 20 September 1995, 14 the Court denied the petition for raising factual issues and for failure to show that the Court of Appeals committed any reversible error. Aboitiz's motion for reconsideration was also denied in a Resolution dated 22 November 1995. 15

The 22 November 1995 Resolution became final and executory. On 26 February 1996, Asia Traders and Allied filed a motion for execution before the RTC of Manila, Branch 20. Aboitiz opposed the motion. On 16 August 1996, the trial court granted the motion and issued a writ of execution. CEcaTH

Alleging that it had no other speedy, just or adequate remedy to prevent the execution of the judgment, Aboitiz filed with the Court of Appeals a petition for certiorariand prohibition with an urgent prayer for preliminary injunction and/or temporary restraining order docketed as CA-G.R. SP No. 41696. 16 The petition was mainly anchored on this Court's ruling in the 1993 GAFLAC case.

On 8 August 1997, the Court of Appeals (Special Seventeenth Division) rendered the assailed decision dismissing the petition. 17 Based on the trial court's finding that Aboitiz was actually negligent in ensuring the seaworthiness of M/V P. Aboitiz, the appellate court held that the real and hypothecary doctrine enunciated in the 1993 GAFLAC case may not be applied in the case. DETACa

In view of the denial of its motion for reconsideration, 18 Aboitiz filed before this Court the instant petition for review on certiorari docketed as G.R. No. 130752. 19The petition attributes the following errors to the Court of Appeals:

THE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT THE LOWER COURT HAD MADE AN EXPRESS FINDING OF THE ACTUAL NEGLIGENCE OF ABOITIZ IN THE SINKING OF

34

THE M/V P. ABOITIZ THEREBY DEPRIVING ABOITIZ OF THE BENEFIT OF THE DOCTRINE OF THE REAL AND HYPOTHECARY NATURE OF MARITIME LAW. 20

THE COURT OF APPEALS ERRED IN NOT GIVING WEIGHT TO THE GAFLAC CASE DECIDED BY THE HONORABLE COURT WHICH SUPPORTS THE APPLICABILITY OF THE REAL AND HYPOTHECARY NATURE OF MARITIME LAW IN THE PRESENT CASE. 21

G.R. No. 137801

On 27 February 1981, Equitable Insurance Corporation (Equitable) filed an action for damages against Aboitiz to recover by way of subrogation the value of the cargoes insured by Equitable that were lost in the sinking of M/V P. Aboitiz. 22 The complaint, which was docketed as Civil Case No. 138395, was later amended to implead Seatrain Pacific Services S.A. and Citadel Lines, Inc. as party defendants. 23 The complaint against the latter defendants was subsequently dismissed upon motion in view of the amicable settlement reached by the parties. STcDIE

On 7 September 1989, the RTC of Manila, Branch 7, rendered judgment 24 ordering Aboitiz to pay Equitable the amount of P87,633.81, plus legal interest and attorney's fees. 25 It found that Aboitiz was guilty of contributory negligence and, therefore, liable for the loss.

In its appeal, docketed as CA-G.R. CV No. 43458, Aboitiz invoked the doctrine of limited liability and claimed that the typhoon was the proximate cause of the loss. On 27 November 1998, the Court of Appeals rendered a decision, affirming the RTC decision. 26

The Court of Appeals (Fifteenth Division) ruled that the loss of the cargoes and the sinking of the vessel were due to its unseaworthiness and the failure of the crew to exercise extraordinary diligence. Said findings were anchored on the 1990 GAFLAC case and on this Court's resolution dated November 13, 1989 in G.R. No. 88159, dismissing Aboitiz's petition and affirming the findings of the appellate court on the vessel's unseaworthiness and the crew's negligence.

Its motion for reconsideration 27 having been denied, 28 Aboitiz filed before this Court a petition for review on certiorari, docketed as G.R. No. 137801, 29 raising this sole issue, to wit:

WHETHER OR NOT THE DOCTRINE OF REAL AND HYPOTHECARY NATURE OF MARITIME LAW (ALSO KNOWN AS THE "LIMITED LIABILITY RULE") APPLIES. 30

ISSUES

The principal issue common to all three petitions is whether Aboitiz can avail limited liability on the basis of the real and hypothecary doctrine of maritime law. Corollary to this issue is the determination of actual negligence on the part of Aboitiz. EcHTCD

These consolidated petitions similarly posit that Aboitiz's liability to respondents should be limited to the value of the insurance proceeds of the lost vessel plus pending freightage and not correspond to the full insurable value of the cargoes paid by respondents, based on the Court's ruling in the 1993 GAFLAC case.

Respondents in G.R. No. 121833 counter that the limited liability rule should not be applied because there was a finding of negligence in the care of the goods on the part of Aboitiz based on this Court's Resolution dated 4 December 1995 in G.R. No. 121833, which affirmed the trial court's finding of negligence on the part of the vessel's captain. Likewise, respondent in G.R. No. 137801 relies on the finding of the trial court, as affirmed by the appellate court, that Aboitiz was guilty of negligence.

35

Respondents in G.R. No. 130752 argue that this Court had already affirmed in toto the appellate court's finding that the vessel was not seaworthy and that Aboitiz failed to exercise extraordinary diligence in the handling of the cargoes. This being the law of the case, Aboitiz should not be entitled to the limited liability rule as far as this petition is concerned, respondents contend. cEaSHC

RULING of the COURT

These consolidated petitions are just among the many others elevated to this Court involving Aboitiz's liability to shippers and insurers as a result of the sinking of its vessel, M/V P. Aboitiz, on 31 October 1980 in the South China Sea. One of those petitions is the 1993 GAFLAC case, docketed as G.R. No. 100446. 31

The 1993 GAFLAC case was an offshoot of an earlier final and executory judgment in the 1990 GAFLAC case, where the General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), as judgment obligee therein, sought the execution of the monetary award against Aboitiz. The trial court granted GAFLAC's prayer for execution of the full judgment award. The appellate court dismissed Aboitiz's petition to nullify the order of execution, prompting Aboitiz to file a petition with this Court. IDSETA

In the 1993 GAFLAC case, Aboitiz argued that the real and hypothecary doctrine warranted the immediate stay of execution of judgment to prevent the impairment of the other creditors' shares. Invoking the rule on the law of the case, private respondent therein countered that the 1990 GAFLAC case had already settled the extent of Aboitiz's liability.

Following the doctrine of limited liability, however, the Court declared in the 1993 GAFLAC case that claims against Aboitiz arising from the sinking of M/V P. Aboitizshould be limited only to the extent of the value of the vessel. Thus, the Court held that the execution of judgments in cases already resolved with finality must be stayed pending the resolution of all the other similar claims arising from the sinking of M/V P. Aboitiz. Considering that the claims against Aboitiz had reached more than 100, the Court found it necessary to collate all these claims before their payment from the insurance proceeds of the vessel and its pending freightage. As a result, the Court exhorted the trial courts before whom similar cases remained pending to proceed with trial and adjudicate these claims so that the pro-rated share of each claim could be determined after all the cases shall have been decided. 32

In the 1993 GAFLAC case, the Court applied the limited liability rule in favor of Aboitiz based on the trial court's finding therein that Aboitiz was not negligent. The Court explained, thus:

. . . In the few instances when the matter was considered by this Court, we have been consistent in this jurisdiction in holding that the only time the Limited Liability Rule does not apply is when there is an actual finding of negligence on the part of the vessel owner or agent . . . . The pivotal question, thus, is whether there is finding of such negligence on the part of the owner in the instant case. SEHDIC

A careful reading of the decision rendered by the trial court in Civil Case No. 144425 as well as the entirety of the records in the instant case will show thatthere has been no actual finding of negligence on the part of petitioner. . . .

The same is true of the decision of this Court in G.R. No. 89757 affirming the decision of the Court of Appeals in CA-G.R. CV No. 10609 since both decisions did not make any new and additional finding of fact. Both merely affirmed the factual findings of the trial court, adding that the cause of the sinking of the vessel was because of unseaworthiness due to the failure of the crew and the master to exercise extraordinary diligence. Indeed, there appears to have been no evidence presented sufficient to form a conclusion that petitioner shipowner itself was negligent, and no tribunal, including this Court, will add or subtract to

36

such evidence to justify a conclusion to the contrary. 33 (Citations entitled) (Emphasis supplied)

The ruling in the 1993 GAFLAC case cited the real and hypothecary doctrine in maritime law that the shipowner or agent's liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. "No vessel, no liability" expresses in a nutshell the limited liability rule. 34

In this jurisdiction, the limited liability rule is embodied in Articles 587, 590 and 837 under Book III of the Code of Commerce, thus:

Art. 587.The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may have earned during the voyage. AECacS

Art. 590.The co-owners of the vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the acts of the captain referred to in Art. 587.

Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging to him.

Art. 837.The civil liability incurred by shipowners in the case prescribed in this section, shall be understood as limited to the value of the vessel with all its appurtenances and freightage served during the voyage. AECIaD

These articles precisely intend to limit the liability of the shipowner or agent to the value of the vessel, its appurtenances and freightage earned in the voyage, provided that the owner or agent abandons the vessel. 35 When the vessel is totally lost in which case there is no vessel to abandon, abandonment is not required. Because of such total loss the liability of the shipowner or agent for damages is extinguished. 36 However, despite the total loss of the vessel, its insurance answers for the damages for which a shipowner or agent may be held liable. 37

Nonetheless, there are exceptional circumstances wherein the ship agent could still be held answerable despite the abandonment of the vessel, as where the loss or injury was due to the fault of the shipowner and the captain. The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a shipowner's liability, does not apply to cases where the injury or average was occasioned by the shipowner's own fault. 38 Likewise, the shipowner may be held liable for injuries to passengers notwithstanding the exclusively real and hypothecary nature of maritime law if fault can be attributed to the shipowner. 39

As can be gleaned from the foregoing disquisition in the 1993 GAFLAC case, the Court applied the doctrine of limited liability in view of the absence of an express finding that Aboitiz's negligence was the direct cause of the sinking of the vessel. The circumstances in the 1993 GAFLAC case, however, are not obtaining in the instant petitions. IaEACT

A perusal of the decisions of the courts below in all three petitions reveals that there is a categorical finding of negligence on the part of Aboitiz. For instance, in G.R. No. 121833, the RTC therein expressly stated that the captain of M/V P. Aboitiz was negligent in failing to take a course of action that would prevent the vessel from sailing into the typhoon. In G.R. No. 130752, the RTC concluded that Aboitiz failed to show that it had exercised the required extraordinary

37

diligence in steering the vessel before, during and after the storm. In G.R. No. 137801, the RTC categorically stated that the sinking of M/V P. Aboitiz was attributable to the negligence or fault of Aboitiz. In all instances, the Court of Appeals affirmed the factual findings of the trial courts.

The finding of actual fault on the part of Aboitiz is central to the issue of its liability to the respondents. Aboitiz's contention, that with the sinking of M/V P. Aboitiz,its liability to the cargo shippers and shippers should be limited only to the insurance proceeds of the vessel absent any finding of fault on the part of Aboitiz, is not supported by the record. Thus, Aboitiz is not entitled to the limited liability rule and is, therefore, liable for the value of the lost cargoes as so duly alleged and proven during trial. ScTaEA

Events have supervened during the pendency of the instant petitions. On two other occasions, the Court ruled on separate petitions involving monetary claims against Aboitiz as a result of the 1980 sinking of the vessel M/V P. Aboitiz. One of them is the consolidated petitions of Monarch Ins. Co., Inc. v. Court of Appeals, 40 Allied Guarantee Insurance Company v. Court of Appeals 41 and Equitable Insurance Corporation v. Court of Appeals 42 (hereafter collectively referred to as Monarch Insurance) promulgated on 08 June 2000. This time, the petitioners consisted of claimants against Aboitiz because either the execution of the judgment awarding full indemnification of their claims was stayed or set aside or the lower courts awarded damages only to the extent of the claimants' proportionate share in the insurance proceeds of the vessel.

In Monarch Insurance, the Court deemed it fit to settle once and for all this factual issue by declaring that the sinking of M/V P. Aboitiz was caused by the concurrence of the unseaworthiness of the vessel and the negligence of both Aboitiz and the vessel's crew and master and not because of force majeure.Notwithstanding this finding, the Court did not reverse but reiterated instead the pronouncement in GAFLAC to the effect that the claimants be treated as "creditors in an insolvent corporation whose assets are not enough to satisfy the totality of claims against it". 43 The Court explained that the peculiar circumstances warranted that procedural rules of evidence be set aside to prevent frustrating the just claims of shippers/insurers. Thus, the Court in Monarch Insurance ordered Aboitiz to institute the necessary limitation and distribution action before the proper RTC and to deposit with the said court the insurance proceeds of and the freightage earned by the ill-fated ship. cCESTA

However, on 02 May 2006, the Court rendered a decision in Aboitiz Shipping Corporation v. New India Assurance Company, Ltd. 44 (New India), reiterating the well-settled principle that the exception to the limited liability doctrine applies when the damage is due to the fault of the shipowner or to the concurrent negligence of the shipowner and the captain. Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited liability cannot be applied. 45 In New India,the Court clarified that the earlier pronouncement in Monarch Insurance was not an abandonment of the doctrine of limited liability and that the circumstances therein still made the doctrine applicable. 46

In New India, the Court declared that Aboitiz failed to discharge its burden of showing that it exercised extraordinary diligence in the transport of the goods it had on board in order to invoke the limited liability doctrine. Thus, the Court rejected Aboitiz's argument that the award of damages to respondent therein should be limited to its pro rata share in the insurance proceeds from the sinking of M/V P. Aboitiz.

The instant petitions provide another occasion for the Court to reiterate the well-settled doctrine of the real and hypothecary nature of maritime law. As a general rule, a ship owner's liability is merely co-extensive with his interest in the vessel, except where actual fault is attributable to the shipowner. Thus, as an exception to the limited liability doctrine, a shipowner or ship agent may be held liable for damages when the sinking of the vessel is attributable to the actual fault or negligence of the shipowner or its failure to ensure the seaworthiness of the vessel. The

38

instant petitions cannot be spared from the application of the exception to the doctrine of limited liability in view of the unanimous findings of the courts below that both Aboitiz and the crew failed to ensure the seaworthiness of the M/V P. Aboitiz. aEACcS

WHEREFORE, the petitions in G.R. Nos. 121833, 130752 and 137801 are DENIED. The decisions of the Court of Appeals in CA-G.R. SP No. 35975-CV, CA-G.R. SP No. 41696 and CA-G.R. CV No. 43458 are hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

Quisumbing, Carpio-Morales, Leonardo-de Castro * and Brion, JJ., concur.

[G.R. No. 151040. October 5, 2005.]

ALLIED BANKING CORPORATION, petitioner, vs. CHENG YONG and LILIA GAW, respondents.

[G.R. No. 154109. October 5, 2005.]

CHENG YONG and LILIA GAW, petitioners, vs. ALLIED BANKING CORPORATION and EX-OFFICIO SHERIFF OF MALABON, METRO MANILA, respondents.

D E C I S I O N

GARCIA, J p:

Before us are these two (2) petitions for review on certiorari under Rule 45 of the Rules of Court to nullify and set aside the following issuances of the Court of Appeals (CA) in CA-G.R. CV 41280, to wit:

1.Decision dated 11 December 2001, 1 partially reversing and setting aside an earlier decision of the Regional Trial Court at Makati, Branch 145, in its Civil Case No. 10947; and

2.Resolution dated 01 July 2002, 2 denying Cheng Yong and Lilia Gaw's motion for reconsideration.

The material facts:

Sometime before 1981, Philippine Pacific Fishing Company, Inc. (Philippine Pacific), through its then Vice-Chairman of the Board and concurrent President Marilyn Javier, obtained from Allied Banking Corporation (Allied Bank), a packing credit accommodation amounting to One Million Seven Hundred Fifty Two Thousand Pesos (P1,752,000.00).

39

To secure the obligation, Marilyn Javier and the spouses Cheng Yong and Lilia Gaw (spouses Cheng, for short), executed a Continuing Guaranty/Comprehensive Surety bearing date 27 March 1981. 3

Later, Philippine Pacific, due to business reverses and alleged misuse of corporate funds by its operating officers, defaulted in the payment of said obligation.

An intra-corporate dispute among its stockholders followed, prompting the filing against Philippine Pacific of a petition for receivership before the Securities and Exchange Commission (SEC), which petition was docketed as SEC Case No. 2042. Likewise, a criminal case for Estafa was filed against Marilyn Javier.

Thereafter, the corporation was reorganized, following which the spouses Cheng Yong and Lilia Gaw were elected as its president and treasurer, respectively. The spouses Cheng also hold similar positions in another company, the Glee Chemicals Phils., Inc. (GCPI), which, incidentally, also had a credit line with Allied Bank. EcaDCI

Meanwhile, on 27 July 1981, the parties in SEC Case No. 2042 agreed to create and constitute a management committee, instead of placing Philippine Pacific under receivership. Hence, in an order dated 14 August 1981, the SEC formally created a management committee whose functions, include, among others, the following:

1.To take custody and possession of all assets, funds, properties and records of the corporation and to prepare an inventory thereof;

2.To administer, manage and preserve such assets, funds and records;

xxx xxx xxx

7.To acquire, lease, sell, mortgage or otherwise encumber such assets with the prior approval of the Commission. 4

It appears, however, that two (2) days prior to the constitution of the management committee, Allied Bank and Philippine Pacific agreed to restructure and convert the packing credit accommodation into a simple loan. Accordingly, Philippine Pacific executed in favor of Allied Bank a promissory note dated 12 August 1981 5 in the same amount as the packing credit accommodation. Aside from affixing their signatures on the same promissory note in their capacity as officers of Philippine Pacific, the spouses Cheng also signed the note in their personal capacities and as co-makers thereof.

As it turned out, Philippine Pacific failed to pay according to the schedule of payments set out in the promissory note of 12 August 1981, prompting the spouses Cheng to secure the note with substantial collateral by executing a deed of chattel mortgage in favor of Allied Bank over a fishing vessel, "Jean III", a Japanese-manufactured vessel with refrigerated hatches and glass freezers, owned by the spouses and registered in their names.

Philippine Pacific again defaulted payment. Hence, on 18 September 1984, Allied Bank filed with the sheriff of Navotas an application for extra-judicial foreclosure of the chattel mortgage constituted on "Jean III".

Pursuant thereto, notices of extra-judicial sale dated 21 September 1981 were served on the concerned parties by the Ex-Officio sheriff of Malabon while the vessel was moored at the Navotas Fishing Port Complex and under a charter contract with Lig Marine Products, Inc.

40

On 27 September 1984, the spouses Cheng, to prevent the auction sale of the vessel, filed with the Regional Trial Court at Quezon City an action for declaratory relief with prayer for injunctive remedies. Initially, that court issued a writ of preliminary injunction restraining the sale but later lifted it upon dismissal of the main case for declaratory relief on 29 March 1985.

In the meantime, the vessel sank at the port of Navotas on 22 June 1985, resulting to its total loss. As per certification of the Harbor Master of the Philippine Fisheries Development Authority, the vessel sank due to unnoticed defects caused by its prolonged stay in the fish port and the abandonment thereof. Shortly before the loss, charterer Lig Marine Products, Inc. offered to purchase the vessel for Four Million Pesos (P4,000,000.00).

On 26 June 1985, the spouses Cheng filed with the Regional Trial Court at Makati a complaint for Injunction, Annulment of Contracts and Damages with the provisional remedy of Preliminary Injunction, against Allied Bank and the Ex-Officio Sheriff of Malabon, therein praying, inter alia, that the promissory note dated 12 August 1981 be declared void and unenforceable because it was executed without the prior approval or ratification of the SEC-created management committee in SEC Case No. 2042, and to declare invalid the deed of chattel mortgage over the vessel "Jean III" for having been constituted to secure a void or unenforceable obligation. The complaint was docketed as Civil Case No. 10947 and raffled to Branch 145 of the court. EDHCSI

Meanwhile, on 02 August 1985, Allied Bank filed with the Ex-Officio Sheriff of Pasig an application for extrajudicial foreclosure of the real estate mortgage 6constituted by the Cheng spouses over their parcel of land covered by TCT No. (222143) 23843, located in San Juan, Metro Manila (hereinafter referred to as the San Juan property), together with the improvement thereon, consisting of a two-storey building belonging to GCPI. It appears that said property was mortgaged by the spouses in favor of Allied Bank on 31 May 1983 to partially secure the payment of the time loan granted by the Bank to GCPI. Despite GCPI's full payment of said loan, Allied Bank refused to release the mortgage on the San Juan property, theorizing that it also secured the obligation of the spouses Cheng as Philippine Pacific's co-makers of the promissory note dated 12 August 1981, in accordance with the stipulation in the deed of mortgage extending coverage of the guaranty to "any other obligation owing to the mortgagee".

On 22 August 1985, the spouses Cheng filed in Civil Case No. 10947 an amended complaint praying, among others, that: (a) the promissory note of 12 August 1981 be declared void and unenforceable; (b) the vessel be declared a total loss; and (c) Allied Bank be ordered to pay them the value of the loss. And, in order to prevent Allied Bank and the Ex-Officio Sheriff of Pasig from foreclosing the real estate mortgage over their San Juan property, the spouses Cheng filed a supplemental complaint with an application for a writ of preliminary injunction. A writ of preliminary injunction was, thereafter, issued by the trial court.

On 17 October 1985, Allied Bank filed a motion to dismiss the amended as well as the supplemental complaints.

In its order of 12 March 1986, the trial court denied the motion with respect to the amended complaint, for lack of merit, while deferring the resolution thereof as regards the supplemental complaint until after trial because the ground alleged did not appear to be indubitable.

Eventually, in a decision dated 08 February 1989, 7 the trial court declared both the promissory note dated 12 August 1981 and the deed of chattel mortgage over the vessel "Jean III" invalid and unenforceable. Dispositively, the decision reads:

WHEREFORE, premises considered, the Court renders judgment declaring both the promissory Note (Exh. "M") and the Deed of Chattel Mortgage (Exh. "5") not valid and unenforceable; permanently enjoining defendants Allied Banking Corporation and the ex-

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officio sheriff of Malabon and his deputies, agents and representatives from proceeding with the foreclosure and auction sale of the fishing vessel "JEAN III"; permanently enjoining the defendants-bank and ex-officio sheriff of Pasig from proceeding with the foreclosure and auction sale of the plaintiffs' real property covered by TCT No. (222143) 23843 including the building thereon owned by Glee Chemicals Philippines, Inc.; ordering defendant bank to pay plaintiffs the sum of Four Million Pesos (P4,000,000.00), Philippine Currency, for the loss of the aforementioned vessel, the sum of Thirty Thousand Pesos (P30,000.00), Philippine Currency as moral and exemplary damages, the further sum of Thirty Thousand Pesos (P30,000.00), Philippine Currency, as attorney's fees; and the costs of the suit. HSaEAD

The motion to dismiss the supplemental complaint filed by defendant is denied for lack of merit.

Finally, within three (3) days from the finality of this decision, defendant bank is hereby compelled to execute the necessary release or cancellation of mortgage covering the aforesaid parcels of land, and deliver the two torrens titles in its possession to herein plaintiffs.

SO ORDERED.

Therefrom, Allied Bank went to the Court of Appeals (CA) via ordinary appeal under Rule 41 of the Rules of Court, which appellate recourse was docketed as CA-G.R. CV No. 41280.

As stated at the outset hereof, the Court of Appeals, in its Decision dated 11 December 2001, partially reversed and set aside the appealed decision of the trial court insofar as it (a) declared the promissory note as not valid and unenforceable and (b) ordered Allied Bank to pay the spouses Cheng the amount of Four Million Pesos (P4,000,000.00) for the loss of the fishing vessel and the sum of Thirty Thousand Pesos (P30,000.00) as moral and exemplary damages. In all other respects, the appellate court affirmed the trial court, thus:

WHEREFORE, the foregoing considered, the appealed decision is REVERSED and SET ASIDE insofar as it (1) DECLARED the Promissory Note dated 12 August 1981 as NOT VALID and unenforceable, and (2) ORDERED appellant Bank to pay to appellee-spouses Cheng the amount of Four Million Pesos (P4,000,000.00) for the loss of the fishing vessel "JEAN III" and the amount of Thirty Thousand Pesos (P30,000.00) for moral and exemplary damages. In all other respects, the decision is AFFIRMED.

SO ORDERED.

Dissatisfied, Allied Bank immediately filed with this Court its petition for review on certiorari in G.R. No. 151040, seeking to set aside and reverse only that portion of the appellate court's decision which affirmed certain aspects of the trial court's decision, i.e., (a) enjoining Allied Bank and the Ex-Officio Sheriff of Pasig from proceeding with the foreclosure of the Real Estate Mortgage over the San Juan property, (b) ordering Allied Bank to execute a release of the same mortgage in favor of the spouses Cheng; (c) ordering Allied Bank to deliver the two (2) torrens titles in favor of the spouses; and (d) ordering Allied Bank to pay attorney's fees and costs. In short, Allied Bank faults the Court of Appeals for not reversing the trial court's decision in its entirety. More specifically, it submits:

In General, THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT DID NOT REVERSE AND SET ASIDE THE DECISION OF THE REGIONAL TRIAL COURT OF MAKATI CITY, BRANCH 145 IN ITS ENTIRETY.

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In Particular, THE HONORABLE COURT OF APPEALS PATENTLY ERRED WHEN IT UPHELD RESPONDENTS' ASSERTION THAT THE REAL ESTATE MORTGAGE DATED MAY 31, 1983 CANNOT BE FORECLOSED WITH RESPECT TO THE OBLIGATION OF PHILIPPINE PACIFIC TO PETITIONER. AISHcD

For their part, the spouses Cheng filed with the Court of Appeals a motion for reconsideration, disputing the appellate court's pronouncement that the August 12, 1981 promissory note and the deed of chattel mortgage over the fishing vessel "Jean III" are valid and enforceable and that the loss of said vessel must be borne by them. In its resolution of 1 July 2002, the appellate court denied the motion.

Hence, the spouses Cheng's own petition for review on certiorari in G.R. No. 154109, seeking the reversal and setting aside of both the appellate court's decision of 11 December 2001 and resolution of 01 July 2002, it being their submission that said court committed a grave and serious reversible error in not holding that:

1.the subject Promissory Note is not valid and enforceable for non-fulfillment of a suspensive condition and consequently, the Deed of Chattel Mortgage, being a mere accessory agreement, is likewise not valid and enforceable in the absence of a valid principal contract; and

2.the Loss of the mortgaged Fishing Vessel "Jean III" must be borne by the respondent bank considering that the vessel was in its possession and control at the time of the loss.

Per this Court's Resolution dated 20 November 2002, 8 the two (2) separate petitions were ordered consolidated, involving, as they do, the same decision of the appellate court.

As we see it, the common issues to be resolved are:

I.Whether or not the promissory note dated 12 August 1981 is valid;

II.Whether or not the chattel mortgage over the fishing vessel "Jean III" can be foreclosed for Philippine Pacific's failure to comply with its obligation under the promissory note dated 12 August 1981; and

III.Whether or not the real estate mortgage constituted over spouses Cheng's parcel of land covered by TCT No. (222143) 23843 [San Juan property] also secured the spouses' obligation as co-makers of the promissory note dated 12 August 1981.

In justifying its reversal of the trial court's finding that the validity and effectivity of the promissory note dated 12 August 1981 were conditioned upon the ratification thereof by the SEC-created management committee in SEC Case No. 2042, the appellate court explained that the terms of the subject promissory note are clear and leave no doubt upon the intention of the parties. On this score, it ruled that the parole evidence introduced by the Cheng spouses to the effect that the validity and enforceability of the note are conditioned upon its approval and ratification by the management committee should have been discarded by the trial court, consistent with the parole evidence rule embodied in Rule 130, Section 9 of the Rules of Court. 9 Says the appellate court in its challenged decision:

Instead, We agree with [Allied Bank] that there is no evidence to support the court a quo's finding that the effectivity of the promissory note was dependent upon the prior ratification or confirmation of the management committee formed by the SEC in SEC Case No. 2042. AEITDH

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To begin with, there is nothing on the face of the promissory note requiring said prior ratification for it to become valid. Basic is the rule that if the terms of the contract are clear and leave no doubt upon the intention of the parties, the literal meaning of its stipulations shall control (Article 1370, Civil Code;Honrado, Jr. vs. CA, 198 SCRA 326).

This basic rule notwithstanding, the court a quo admitted in evidence the alleged verbal stipulation made by [the spouses Cheng] to the effect that the validity of the promissory note was dependent upon its ratification by the management committee. Such parole evidence should not have been allowed as it had the effect of altering the provisions of the promissory note which are in clear and unequivocal terms.

Under the parole evidence rule, the terms of a contract are conclusive upon the parties and evidence which shall vary a complete and enforceable agreement embodied in a document is inadmissible (Magellan Manufacturing Corporation vs. CA, 201 SCRA 106). 10 (Words in bracket ours).

We agree.

The appellate court is correct in declaring that under the parole evidence rule, when the parties have reduced their agreement into writing, they are deemed to have intended such written agreement to be the sole repository and memorial of everything that they have agreed upon. All their prior and contemporaneous agreements are deemed to be merged in the written document so that, as between them and their successors-in-interest, such writing becomes exclusive evidence of the terms thereof and any verbal agreement which tends to vary, alter or modify the same is not admissible. 11

Here, the terms of the subject promissory note and the deed of chattel mortgage are clear and explicit and devoid of any conditionality upon which its validity depends. To be sure, Allied Bank was not a party to SEC Case No. 2042 where the management committee was ordered created; hence, it would not be correct to presume that it had notice of the existence of the management committee which, incidentally, was still to be created when the subject promissory note was executed on 12 August 1981. Notably, while the parties in SEC Case No. 2042 agreed to form the management committee on 27 July 1981, it was only on 14 August 1981 when the committee was actually created and its members appointed. Clearly then, the subject promissory note was outside the realm of authority of the management committee. Corollarily, the chattel mortgage accessory to it is likewise valid.

We thus declare and so hold that Allied Bank's foreclosure of the chattel mortgage constituted over the vessel "Jean III" was justified. On this score, we also rule that the loss of the mortgaged chattel brought about by its sinking must be borne not by Allied Bank but by the spouses Cheng. As owners of the fishing vessel, it was incumbent upon the spouses to insure it against loss. Thus, when the vessel sank before the chattel mortgage could be foreclosed, uninsured as it is, its loss must be borne by the spouses Cheng.

We proceed to the third issue. Both the trial court and the appellate court are unanimous in finding that the real estate mortgage executed by the spouses Cheng over their San Juan property to. secure the loan of GCPI cannot be held to secure the spouses' obligation as co-makers of the promissory note dated 12 August. 1981. We see no reason to depart from the findings of the two courts below.

Article 2126 of the Civil Code is explicit:

ART. 2126.The mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted.

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The agreement between the Cheng spouses and Allied Bank as evidenced by the receipt signed by Allied Bank's representative is that the San Juan property shall collateralize the approved loan of GCPI, thus indicating the specific loan to be secured and nothing else. To be sure, the obligation of GCPI was already paid in full. Hence the real estate mortgage accessory to it was inevitably extinguished. aAEIHC

All told, we find no reversible error committed by the appellate court in rendering the assailed 11 December 2001 Decision and subsequent 01 July 2002 Resolution in CA-G.R. CV 41280.

WHEREFORE, the consolidated petitions are DENIED and the challenged decision and resolution of the Court of Appeals AFFIRMED in toto.

SO ORDERED.

Panganiban, Sandoval-Gutierrez, Corona and Carpio Morales, JJ., concur.

[G.R. Nos. 47447-47449. October 29, 1941.]

TEODORO R. YANGCO, ETC., petitioner, vs. MANUEL LASERNA, ET AL., respondents.

Claro M. Recto, for petitioner.

Powell & Vega, for respondents.

SYLLABUS

1.SHIPS AND SHIPPING; COLLISIONS OR SHIPWRECKS; CIVIL LIABILITY OF SHIPOWNER FOR INJURY TO OR DEATH OF PASSENGERS ARISING FROM NEGLIGENCE OF CAPTAIN. — If the shipowner or agent may in any way be held civilly liable at all for injury to or death of passengers arising from the negligence of the captain in cases of collisions or shipwrecks, his liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. In arriving at this conclusion, the fact is not ignored that the ill-fated S. S. Negros, as a vessel engaged in interisland trade, is a common carrier, and that the relationship between the petitioner and the passengers who died in the mishap rests on a contract of carriage. But assuming that petitioner is liable for a breach of contract of carriage, the exclusively "real and hypothecary nature" of maritime law operates to limit such liability to the value of the vessel, or to the insurance thereon, if any. In the instant case it does not appear that the vessel was insured.

D E C I S I O N

MORAN, J p:

At about one o'clock in the afternoon of May 26, 1927, the steamer S. S. Negros, belonging to petitioner here, Teodoro R. Yangco, left the port of Romblon on its return trip to

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Manila. Typhoon signal No. 2 was then up, of which fact the captain was duly advised and his attention thereto called by the passengers themselves before the vessel set sail. The boat was overloaded as indicated by the loadline which was 6 to 7 inches below the surface of the water. Baggage, trunks and other equipments were heaped on the upper deck, the hold being packed to capacity. In addition, the vessel carried thirty sacks of crushed marble and about one hundred sacks of copra and some lumber. The passengers, numbering about 180, were overcrowded, the vessel's capacity being limited to only 123 passengers. After two hours of sailing, the boat encountered strong winds and rough seas between the islands of Banton and Simara, and as the waves splashed the ladies' dresses, the awnings were ordered lowered. As the sea became increasingly violent, the captain ordered the vessel to turn left, evidently to return to port, but in the maneuver, the vessel was caught sidewise by a big wave which caused it to capsize and sink. Many of the passengers died in the mishap, among them being Antolin Aldaña and his son Victorioso, husband and son, respectively, of Emilia Bienvenida who, together with her other children and a brother- in-law, are respondents in G. R. No. 47447; Casiana Laserna, the daughter of respondents Manuel Laserna and P. A. de Laserna in G. R. No. 47448; and Genaro Basaña, son of Filomeno Basaña, respondent in G. R. No. 47449. These respondents instituted in the Court of First Instance of Capiz separate civil actions against petitioner here to recover damages for the death of the passengers aforementioned. The court awarded the heirs of Antolin and Victorioso Aldaña the sum of P2,000; the heirs of Casiana Laserna, P590; and those of Genaro Basaña, also P590. After the rendition of the judgment to this effect, petitioner, by a verified pleading, sought to abandon the vessel to the plaintiffs in the three cases, together with all its equipments, without prejudice to his right to appeal. The abandonment having been denied, an appeal was taken to the Court of Appeals, wherein all the judgments were affirmed except that which awarded to the Aldañas the sum of P2,000, which sum was increased to P4,000. Petitioner, now deceased, appealed and is here represented by his legal representative.

Brushing aside the incidental issues, the fundamental question here raised is: May the shipowner or agent, notwithstanding the total loss of the vessel as a result of the negligence of its captain, be properly held liable in damages for the consequent death of its passengers? We are of the opinion and so hold that this question is controlled by the provision of article 587 of the Code of Commerce. Said article reads:

"The agent shall also be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried; but he may exempt himself therefrom by abandoning the vessel with all her equipments and the freight he may have earned during the voyage."

The provision accords a shipowner or agent the right of abandonment; and by necessary implication, his liability is confined to that which he is entitled as of right to abandon - "the vessel with all her equipments and the freight it may have earned during the voyage." It is true that the article appears to deal only with the limited liability of shipowners or agents for damages arising from the misconduct of the captain in the care of the goods which the vessel carries, but this is a mere deficiency of language and in no way indicates the true extent of such liability. The consensus of authorities is to the effect that notwithstanding the language of the aforequoted provision, the benefit of limited liability therein provided for, applies in all cases wherein the shipowner or agent may properly be held liable for the negligent or illicit acts of the captain. Dr. Jose Ma. Gonzalez de Echavarri y Vivanco, commenting on said article, said:

"La letra del Codigo, en el articulo 587, presenta una gravisima cuestion. El derecho de abandono, si se atiende a lo escrito, solo se refiere a las indemnizaciones a que diere lugar la conducta del Capitan en la custodia de los efectos que cargo en el buque.

"¿Es ese el espiritu del legislador? No; ¿habra derecho de abandono en las responsabilidades nacidas de obligaciones contraidas por el Capitan y de otros actos de este? Lo reputamos evidente y, para fortalecer nuestra opinion, basta copiar el siguiente parrafo de la Exposicion de motivos:

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" 'El proyecto, al aplicar estos principios, se inspira tambien en los intereses del comercio maritimo, que quedaran mas asegurados ofreciendo a todo el que contrata con el naviero o Capitan del buque, la garantia real del mismo, cualesquiera que sean las facultades o atribuciones de que se hallen investidos.'" (Echavarri, Codigo de Comercio, Tomo 4, 2.a ed., pags. 483-484.)

A cursory examination will disclose that the principle of limited liability of a shipowner or agent is provided for in but three articles of the Code of Commerce - article 587 aforequoted and articles 590 and 837. Article 590 merely reiterates the principle embodied in article 587, where the vessel is owned by several persons. Article 837 applies the same principle in cases of collision, and it has been observed that said article is but "a necessary consequence of the right to abandon the vessel given to the shipowner in article 587 of the Code, and it is one of the many superfluities contained in the Code." (Lorenzo Benito, Lecciones 352, quoted in Philippine Shipping Co. vs. Garcia, 6 Phil., 281, 282.) In effect, therefore, only articles 587 and 590 are the provisions contained in our Code of Commerce on the matter, and the framers of said code had intended those provisions to embody the universal principle of limited liability in all cases. Thus, in the "Exposicion de Motivos" of the Code of Commerce, we read:

"The present code (1829) does not determine the juridical status of the agent where such agent is not himself the owner of the vessel. This omission is supplied by the proposed code, which provides in accordance with the principles of maritime law that by agent it is to be understood the person intrusted with the provisioning of the vessel, or the one who represents her in the port in which she happens to be. This person is the only one who represents the vessel - that is to say, the only one who represents the interests of the owner of the vessel. This provision has therefore cleared the doubt which existed as to the extent of the liability, both of the agent and of the owner of the vessel. Such liability is limited by the proposed code to the value of the vessel and other things appertaining thereto."

In Philippine Shipping Co. vs. Garcia (6 Phil., 281, 284-286), we have expressed ourselves in such a comprehensive manner as to leave no room for doubt on the applicability of our ratio decidendi not only to cases of collision but also to those of shipwrecks, etc. We said:

"This is the difference which exists between the lawful acts and lawful obligations of the captain and the liability which he incurs on account of any unlawful act committed by him. In the first case, the lawful acts and obligations of the captain beneficial to the vessel may be enforced as against the agent for the reason that such obligations arise from the the contract of agency (provided, however, that the captain does not exceed his authority), while as to any liability incurred by the captain through his unlawful acts, the ship agent is simply subsidiarily civilly liable. This liability of the agent is limited to the vessel and it does not extend further. For this reason the Code of Commerce makes the agent liable to the extent of the value of the vessel, as the codes of the principal maritime nations provide, with the vessel, and not individually. Such is also the spirit of our Code.

"The spirit of our code is accurately set forth in a treatise on maritime law, from which we deem proper to quote the following as the basis of this decision:

"'That which distinguishes the maritime from the civil law and even from the mercantile law in general is the real and hypothecary nature of the former, and the many securities of a real nature that maritime customs from time immemorial, the laws, the codes, and the later jurisprudence, have provided for the protection of the various and conflicting interests which are ventured and risked in maritime expeditions, such as the interests of the vessel and of the agent, those of the owners of the cargo and consignees, those who salvage the ship, those who make loans upon the cargo, those of the sailors and members of the crew as to their wages, and those of a constructor as to repairs made to the vessel.

"'As evidence of this real nature of the maritime law we have (1) the limitation of the liability of the agents to the actual value of the vessel and the freight money, and (2)

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the right to retain the cargo and the embargo and detention of the vessel even in cases where the ordinary civil law would not allow more than a personal action against the debtor or person liable. It will be observed that these rights are correlative, and naturally so, because if the agent can exempt himself from liability by abandoning the vessel and freight money, thus avoiding the possibility of risking his whole fortune in the business, it is also just that his maritime creditor may for any reason attach the vessel itself to secure his claim without waiting for a settlement of his rights by a final judgment, even to the prejudice of a third person.

"'This repeals the civil law to such an extent that, in certain cases, where the mortgaged property is lost no personal action lies against the owner or agent of the vessel. For instance, where the vessel is lost the sailors and members of the crew cannot recover their wages; in case of collision, the liability of the agent is limited as aforesaid, and in case of shipwreck, those who loan their money on the vessel and cargo lose all their rights and cannot claim reimbursement under the law.

"'There are two reasons why it is impossible to do away with these privileges, to wit: (1) The risk to which the thing is exposed, and (2) the real nature of the maritime law, exclusively real, according to which the liability of the parties is limited to a thing which is at the mercy of the waves. If the agent is only liable with the vessel and freight money and both may be lost through the accidents of navigation it is only just that the maritime creditor have some means to obviating this precarious nature of his rights by detaining the ship, his only security, before it is lost."'The liens, tacit or legal, which may exist upon the vessel and which a purchaser of the same would be obliged to respect and recognize are - in addition to those existing in favor of the State by virtue of the privileges which are granted to it by all the laws — pilot, tonnage, and port dues and other similar charges, the wages of the crew earned during the last voyage as provided in article 646 of the Code of Commerce, salvage dues under article 842, the indemnification due to the captain of the vessel in case his contract is terminated on account of the voluntary sale of the ship and the insolvency of the owner as provided in article 608, and all other liabilities arising from collisions under articles 837 and 838.'"

We are shared in this conclusion by the eminent commentators on the subject. Agustin Vicente y Gella, asserting, in his "Introduccion al Derecho Mercantil Comparado" 1929 (pages 374-375), the like principle of limited liability of shipowners or agent in cases of accidents, collisions, shipwrecks, etc., said:

"De las responsabilidades que pueden resultar como consequencia del comercio maritimo, y no solo por hechos propios sino tambien por las que se ocasionen por los del capitan y la tripulacion, responde frente a tercero el naviero que representa el buque; pero el derecho maritimo es sobre todo tradicional y siguiendo un viejo principio de la Edad Media la responsabilidad del naviero se organiza de un modo especifico y particularisimo que no encuentra similar en el derecho general de las obligaciones.

"Una forma corrientisima de verificarse el comercio maritimo durante la epoca medieval, era prestar un propietario su navio para que cargase en el mercancias determinada persona, y se hiciese a la mar, yendo al frente de la expedicion un patron del buque, que llegado al puerto de destino se encargaba de venderlas y retornaba al de salida despues de adquirir en aquel otros efectos que igualmente revendia a su regreso, verificado lo cual los beneficios de la expedicion se repartian entre el dueño del buque, el cargador y el capitan y tripulantes en la proporcion estipulada. El derecho maritimo empezo a considerar la asociacion asi formada como una verdadera sociedad mercantil, de responsabilidad limitada, y de acuerdo con los principios que gobiernan aquella en los casos de accidentes, abordajes, naufragios, etc., se resolvia que el dueño del buque perdia la nave, el cargador las mercancias embarcadas y el capitan y la tripulacion su trabajo, sin que en ningún caso el tercer acreedor pudiese reclamar mayor cantidad de ninguno de ellos, porque su responsabilidad quedaba limitada a lo que cada uno aporto a la sociedad. Recogidas estas ideas en el derecho comercial de tiempos posteriores, la responsabilidad del naviero se edifico sobre aquellos principios, y derogando la norma general civil de que del cumplimiento de sus obligaciones responde el deudor con todos sus bienes presentes y futuros, la responsabilidad maritima se considero siempre limitada ipso jure al patrimonio de mar. Y este es el origen de la regla trascendental de derecho maritimo según la cual el

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naviero se libera de toda responsabilidad abandonando el buque y el flete a favor de los acreedores.".

From the Enciclopedia Juridica Española, Vol. 23, p. 347, we read:

"Ahora bien: ¿hasta donde se extiende esta responsabilidad del naviero? ¿sobre que bienes pueden los acreedores resarcirse? Esta es otra especialidad del Derecho maritimo; en el Derecho común la responsabilidad es limitada; tambien lo era en el antiguo Derecho maritimo romano; se daba la actio exercitoria contra el exercitor navis sin ninguna restriccion, pero en la Edad Media una idea nueva se introdujo en los usos maritimos. Las cargas resultantes de las expediciones maritimas se consideraron limitadas por los propietarios de las naves a los valores comprometidos por ellos en cada expedicion; se separo ficticiamente el patrimonio de los navieros en dos partes que todavia se designan de una manera bastante exacta; fortuna de tierra y fortuna de mar o flotante; y se admitio la teoria de que esta era la que respondia solo de las deudas provinientes de los actos del capitan o de la tripulacion, es decir, que el conjunto del patrimonio del naviero escaparia a estas cargas desde el momento en que abandonara la nave y los fletes a los acreedores. . . .".

Escriche in his Diccionario de la Legislacion y Jurisprudencia, Vol. 1, p. 38, observes:

"La responsabilidad del naviero, en el caso expuesto, se funda en el principio de derecho común de ser responsable todo el que pone al frente de un establecimiento a una persona, de los daños o perjuicios que ocasionare esta desempeñando su cometido, y en que estando facultado el naviero para la eleccion de capitan de la nave, viene a tener indirectamente culpa en la negligencia o actos de este que o casionaron daños o perjuicios, puesto que no se aseguro de su pericia o buena fe. Limitase, sin embargo, la responsabilidad del naviero a la perdida de la nave, sus aparejos, y fletes devengados durante el viaje; porque no pudiendo vigilar de un modo directo e inmediato la conducta del capitan, hubiera sido duro hacerla extensiva a todos sus bienes que podria comprometer el capitan con sus faltas o delitos."

The views of these learned commentators, including those of Estasen (Derecho Mercantil, Vol. 4, p. 259) and Supino (Derecho Mercantil, pp. 463-464), leave nothing to be desired and nothing to be doubted on the principle. It only remains to be noted that the rule of limited liability provided for in our Code of Commerce reflects merely, or is but a restatement, imperfect though it is, of the almost universal principle on the subject. While previously under the civil or common law, the owner of a vessel was liable to the full amount for damages caused by the misconduct of the master, by the general maritime law of modern Europe, the liability of the shipowner was subsequently limited to his interest in the vessel. (Norwich & N. Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585.) A similar limitation was placed by the British Parliament upon the liability of English shipowners through a series of statutes beginning in 1734 with the Act of 7 George II, chapter 15. The legislatures of Massachusetts and Maine followed suit in 1818 and 1821, and finally, Congress enacted the Limited Liability Act of March 3, 1851, embodying most of the provisions contained in the British Statutes (see 24 R. C. L. pp. 1387-1389). Section 4283 of the Revised Statutes (sec. 183, Tit. 46, Code of Laws of U. S. A.) reads:

"LIABILITY OF OWNER NOT TO EXCEED INTEREST. — The liability of the owner of any vessel, for any embezzlement, loss, or destruction, by any person, of any property, goods, or merchandise, shipped or put on board of such vessel, or for any loss, damage, or injury by collision, or for any act, matter or thing, loss, damage, or forfeiture, done, occasioned, or incurred without the privity, or knowledge of such owner or owners, shall in no case exceed the amount or value of the interest of such owner in such vessel, and her freight then pending."

The policy which the rule is designed to promote is the encouragement of shipbuilding and investment in maritime commerce. (Vide: Norwich & N. Y. Trans. Co. v. Wright, supra; The Main v. Williams, 152 U. S. 122; 58 C. J. 634.) And it is in that spirit that the American courts construed the Limited Liability Act of Congress whereby the immunities of the Act were applied to claims not only for lost goods but also for injuries and "loss of life of passengers,

49

whether arising under the general law of admiralty, or under Federal or State statutes." (The City of Columbus, 22 Fed. 460; The Longfellow, 104 Fed. 360; Butler v. Boston & Savannah Steamship Co., 32 Law. ed. 1017; Craig v. Continental Insurance Co., 35 Law. ed. 836.) The Supreme Court of the United States in Norwich & N. Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585, 589-590, accounting for the history of the principle, clinches our exposition of the supporting authorities:

"The history of the limitation of liability of shipowners is matter of common knowledge. The learned opinion of Judge Ware in the case of The Rebecca, 1 Ware, 187-194, leaves little to be desired on the subject. He shows that it originated in the maritime law of modern Europe; that whilst the civil, as well as the common law, made the owner responsible to the whole extent of damage caused by the wrongful act or negligence of the master or crew, the maritime law only made them liable (if personally free from blame) to the amount of their interest in the ship. So that, if they surrendered the ship, they were discharged.

"Grotius, in his law of War and Peace, says that men would be deterred from investing in ships if they thereby incurred the apprehension of being rendered liable to an indefinite amount by the acts of the master and, therefore, in Holland, they had never observed the Roman Law on that subject, but had a regulation that the ship owners should be bound no farther than the value of their ship and freight. His words are: 'Navis et eorum quae in navi sunt,' 'the ship and goods therein.' But he is speaking of the owner's interest; and this, as to the cargo, is the freight thereon, and in that sense he is understood by the commentators. Boulay Paty, Droit Maritime, tit. 3, sec. 1, p. 276; Book II, c. XI, sec. XIII. The maritime law, as codified in the celebrated French Ordonance de la Marine, in 1681, expressed the rule thus: 'The proprietors of vessels shall be responsible for the acts of the master, but they shall be discharged by abandoning the ship and freight.' Valin, in his commentary on this passage, lib. 2, tit. 8, art. 2, after specifying certain engagements of the master which are binding on the owners, without any limit of responsibility, such as contracts for the benefit of the vessel, made during the voyage (except contracts of bottomry) says: 'With these exceptions it is just that the owner should not be bound for the acts of the master, except to the amount of the ship and freight. Otherwise he would run the risk of being ruined by the bad faith or negligence of his captain, and the apprehension of this would be fatal to the interests of navigation. It is quite sufficient that he be exposed to the loss of his ship and of the freight, to make it his interest, independently of any goods he may have on board to select a reliable captain.' Pardessus says: 'The owner is bound civilly for all delinquencies committed by the captain within the scope of his authority, but he may discharge himself therefrom by abandoning the ship and freight; and, if they are lost, it suffices for his discharge, to surrender all claims in respect of the ship and its freight,' such as insurance, etc. Droit Commercial, part 3, tit. 2, c. 3, sec. 2.

"The same general doctrine is laid down by many other writers on maritime law. So that it is evident that, by this law, the owner's liability was coextensive with his interest in the vessel and its freight, and ceased by his abandonment and surrender of these to the parties sustaining loss."

In the light of all the foregoing, we therefore hold that if the shipowner or agent may in any way be held civilly liable at all for injury to or death of passengers arising from the negligence of the captain in cases of collisions or shipwrecks, his liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. In arriving at this conclusion, we have not been unmindful of the fact that the ill-fated steamship Negros, as a vessel engaged in interisland trade, is a common carrier (De Villata v. Stanely, 32 Phil., 541), and that the as a vessel engaged in interisland trade, is a common carrier (De Villata v. Stanely, 32 Phil., 541), and that the relationship between the petitioner and the passengers who died in the mishap rests on a contract of carriage. But assuming that petitioner is liable for a breach of contract of carriage, the exclusively "real and hypothecary nature" of maritime law operates to limit such liability to the value of the vessel, or to the insurance thereon, if any. In the instant case it does not appear that the vessel was insured.

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Whether the abandonment of the vessel sought by the petitioner in the instant case was in accordance with law or not, is immaterial. The vessel having totally perished, any act of abandonment would be an idle ceremony.

Judgment is reversed and petitioner is hereby absolved of all the complaints, without costs.

Avanceña, C.J., Abad Santos, Diaz, Laurel, Horrilleno and Ozaeta, JJ., concur.

[G.R. No. L-49407. August 19, 1988.]

NATIONAL DEVELOPMENT COMPANY, petitioner-appellant, vs. THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-appellees.

[G.R. No. L-49469. August 19, 1988.]

MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant, vs. THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-appellees.

Balgos & Perez Law Office for private respondent in both cases.

SYLLABUS

1.CIVIL LAW; COMMON CARRIERS; LIABILITY FOR GOODS; GOVERNING LAW; CASE OF EASTERN SHIPPING LINES INC. V. INTERMEDIATE APPELLATE COURT CITED. — This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (150 SCRA 469-470 [1987]) where it was held under similar circumstances that "the law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of Commerce and by special laws (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to the provisions of the Civil Code.

2.ID.; ID.; ID.; ID.; ID.; CASE AT BAR. — In the case at bar, it has been established that the goods in question are transported from San Francisco, California and Tokyo, Japan to the Philippines and that they were lost or damaged due to a collision which was found to have been caused by the negligence or fault of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of the Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan.

3.ID.; ID.; DUTY; EXTRAORDINARY DILIGENCE IN HANDLING GOODS; DEFENSE IN OVERCOMING PRESUMPTION OF NEGLIGENCE. — Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them according to all circumstances of each case. Accordingly, under Article 1735 of the same Code, in all cases other than those mentioned is Article 1734 thereof, the common carrier shall

51

be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by law.

4.ID.; ID.; COLLISION OF VESSELS; GOVERNED BY THE CODE OF COMMERCE. — It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no reversible error can be found in respondent court's application to the case at bar of Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels.

5.MERCANTILE LAW; CODE OF COMMERCE; COLLISION OF VESSELS; LIABILITY FOR DAMAGES SUFFERED. — More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred after an expert appraisal. But more in point to the instant case is Article 827 of the same Code, which provides that if the collision is imputable to both vessels, each one shall suffer its own damages and both shall be solidarily responsible for the losses and damages suffered by their cargoes.

6.ID.; ID.; ID.; ID.; PRIMARY LIABILITY OF SHIPOWNER OF CARRIER. — Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or carrier, is not exempt from liability for damages arising from collision due to the fault or negligence of the captain. Primary liability is imposed on the shipowner or carrier in recognition of the universally accepted doctrine that the shipmaster or captain is merely the representative of the owner who has the actual or constructive control over the conduct of the voyage (Yeung Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).

7.ID.; ID.; APPLICABILITY OF THE CODE OF COMMERCE; NOT REPEALED NOR LIMITED BY THE CARRIAGE OF GOODS BY SEA ACT. — There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does not specifically provide for the subject of collision, said Act in no uncertain terms, restricts its application "to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade." Under Section 1 thereof, it is explicitly provided that "nothing in this Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its application." By such incorporation, it is obvious that said law not only recognizes the existence of the Code of Commerce, but more importantly does not repeal nor limit its application.

8.CIVIL LAW; COMMON CARRIERS; LIABILITY FOR LOSS OF GOODS; SOLIDARY LIABILITY OF THE OWNER AND AGENT OF THE OFFENDING VESSEL. — It is well settled that both the owner and agent of the offending vessel are liable for the damage done where both are impleaded; that in case of collision, both the owner and the agent are civilly responsible for the acts of the captain; that while it is true that the liability of the naviero in the sense of charterer or agent, is not expressly provided in Article 826 of the Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence under the Civil Code but more specially as regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the Court held that both the owner and agent (Naviero) should be declared jointly and severally liable, since the obligation which is the subject of the action had its origin in a tortious act and did not arise from contract. Consequently, the agent, even though he may not be the owner of the vessel, is liable to the shippers and owners of the cargo transported by it, for losses and damages occasioned to such cargo, without prejudice, however, to his rights against the owner of the ship, to the extent of the value of the vessel, its equipment, and the freight.

9.ID.; ID.; ID.; WHERE LIABILITY FOR LOSS OF GOODS CANNOT BE LIMITED. — MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and corroborated no less by invoices offered as evidence during the trial. Besides, common carriers,

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in the language of the court in Juan Ysmael & Co., Inc. v. Barretto et al., (51 Phil. 90 [1927]) "cannot limit its liability for injury to a less of goods where such injury or loss was caused by its own negligence." Negligence of the captains of the colliding vessel being the cause of the collision, and the cargoes not being jettisoned to save some of the cargoes and the vessel, the trial court and the Court of Appeals acted correctly in not applying the law on averages (Articles 806 to 818, Code of Commerce).

D E C I S I O N

PARAS, J p:

These are appeals by certiorari from the decision ** of the Court of Appeals in CA G.R. No. L-46513-R entitled "Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines and National Development Company defendant-appellants," affirming in toto the decision *** in Civil Case No. 60641 of the then Court of First Instance of Manila, Sixth Judicial District, the dispositive portion of which reads:

"WHEREFORE, judgment is hereby rendered ordering the defendants National Development Company and Maritime Company of the Philippines, to pay jointly and severally, to the plaintiff Development Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY FOUR THOUSAND AND NINE HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS (364, 915.86) with the legal interest thereon from the filing of plaintiffs complaint on April 22, 1965 until fully paid, plus TEN THOUSAND PESOS (P10,000.00) by way of damages as and for attorney's fee.

"On defendant Maritime Company of the Philippines' cross-claim against the defendant National Development Company, judgment is hereby rendered, ordering the National Development Company to pay the cross-claimant Maritime Company of the Philippines may voluntarily or by compliance to a writ of execution pay to the plaintiff pursuant to the judgment rendered in this case.

"With costs against the defendant Maritime Company of the Philippines."

(pp. 34-35, Rollo, GR No. L-49469)

The facts of these cases as found by the Court of Appeals, are as follows:

"The evidence before us shows that in accordance with a memorandum agreement entered into between defendants NDC and MCP on September 13, 1962, defendant NDC as the first preferred mortgagee of three ocean going vessels including one with the name 'Doña Nati' appointed defendant MCP as its agent to manage and operate said vessel for and in its behalf and account (Exh. A). Thus, on February 28, 1964 the E. Philipp Corporation of New York loaded on board the vessel 'Doña Nati' at San Francisco, California, a total of 1,200 bales of American raw cotton consigned to the order of Manila Banking Corporation, Manila and the People's Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A). Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of 200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M&M-1). En route to Manila the vessel Doña Nati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a Japanese vessel 'SS Yasushima Maru' as a result of which 550 bales of aforesaid cargo of American raw cotton were lost and/or destroyed, of which 535 bales as damaged were landed and sold on the authority of

53

the General Average Surveyor for Yen 6,045,-500 and 15 bales were not landed and deemed lost (Exh. G). The damaged and lost cargoes was worth P344,977.86 which amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as holder of the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A, K-5-A, A-2, N-3 and R-3). Also considered totally lost were the aforesaid shipment of Kyokuto, Boekui, Kaisa Ltd., consigned to the order of Manila Banking Corporation, Manila, acting for Guilcon, Manila. The total loss was P19,938.00 which the plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of lading (Exhibits M-1 and S-3). Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to the consignees or their successors-in-interest, for the said lost or damaged cargoes. Hence, plaintiff filed this complaint to recover said amount from the defendants-NDC and MCP as owner and ship agent respectively, of the said 'Doña Nati' vessel." (Rollo, L-49469, p. 38).

On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of First Instance of Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6).

Interposing the defense that the complaint states no cause of action and even if it does, the action has prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 714). DISC filed an Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal, pp. 14-24). On June 29, 1965, the trial court deferred the resolution of the motion to dismiss till after the trial on the merits (Record on Appeal, p. 32). On June 8, 1965, MCP filed its answer with counterclaim and cross-claim against NDC.

NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24). It also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However, on October 16, 1965, NDC's answer to DISC's complaint was stricken off from the record for its failure to answer DISC's written interrogatories and to comply with the trial court's order dated August 14, 1965 allowing the inspection or photographing of the memorandum of agreement it executed with MCP. Said order of October 16, 1965 likewise declared NDC in default (Record on Appeal, p. 44). On August 31, 1966, NDC filed a motion to set aside the order of October 16, 1965, but the trial court denied it in its order dated September 21, 1966.

On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered a decision ordering the defendants MCP and NDC to pay jointly and solidarily to DISC the sum of P364,915.86 plus the legal rate of interest to be computed from the filing of the complaint on April 22, 1965, until fully paid and attorney's fees of P10,000.00. Likewise, in said decision, the trial court granted MCP's cross-claim against NDC.

MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after its motion to set aside the decision was denied by the trial court in its order dated February 13, 1970.

On November 17, 1978, the Court of Appeals promulgated its decision affirming in toto the decision of the trial court.

Hence these appeals by certiorari.

NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On July 25, 1979, this Court ordered the consolidation of the above cases (Rollo, p. 103). On August 27, 1979, these consolidated cases were given due course (Rollo, p. 108) and submitted for decision on February 29, 1980 (Rollo, p. 136).

54

In its brief, NDC cited the following assignments of error:

I

THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL "DOÑA NATI" WITH THE "YASUSHIMA MARU" OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL JURISDICTION OF THE PHILIPPINES.

II

THE COURT OF APPEALS ERRED IN NOT DISMISSING THE COMPLAINT FOR REIMBURSEMENT FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-Appellant National Development Company; p. 96, Rollo).

On its part, MCP assigned the following alleged errors:

I

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS AGAINST PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING THE COMPLAINT.

II

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION OF RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS AGAINST HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF LIMITATION AND HAS ALREADY PRESCRIBED.

III

THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE RESPONDENT'S EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION OF THE SS DOÑA NATI AND THE YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS DOÑA NATI.

IV

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP AGENT OR NAVIERO OF SS DOÑA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO RESULTING IN THE COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU.

V

THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE

55

CAUSED IN THE AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN HOLDING THAT PARAGRAPH 10 OF THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE THERE BEING NO GENERAL AVERAGE TO SPEAK OF.

VI

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL DEVELOPMENT COMPANY AND MARITIME COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEY'S FEES INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE COSTS.

(pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121, Rollo).

The pivotal issue in these consolidated cases is the determination of which laws govern loss or destruction of goods due to collision of vessels outside Philippine waters, and the extent of liability as well as the rules of prescription provided thereunder.

The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to the case at bar and not the Civil Code or the Code of Commence. Under Section 4 (2) of said Act, the carrier is not responsible for the loss or damage resulting from the "act, neglect or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship." Thus, NDC insists that based on the findings of the trial court which were adopted by the Court of Appeals, both pilots of the colliding vessels were at fault and negligent, NDC would have been relieved of liability under the Carriage of Goods by Sea Act. Instead, Article 287 of the Code of Commerce was applied and both NDC and MCP were ordered to reimburse the insurance company for the amount the latter paid to the consignee as earlier stated.

This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (150 SCRA 469-470 [1987]) where it was held under similar circumstances that "the law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of Commerce and by special laws (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to the provisions of the Civil Code.

In the case at bar, it has been established that the goods in question are transported from San Francisco, California and Tokyo, Japan to the Philippines and that they were lost or damaged due to a collision which was found to have been caused by the negligence or fault of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of the Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan.

Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them according to all circumstances of each case. Accordingly, under Article 1735 of the same Code, in all cases other than those mentioned is Article 1734 thereof, the common carrier shall be presumed to have been at fault

56

or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by law.

It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no reversible error can be found in respondent court's application to the case at bar of Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels.

More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred after an expert appraisal. But more in point to the instant case is Article 827 of the same Code, which provides that if the collision is imputable to both vessels, each one shall suffer its own damages and both shall be solidarily responsible for the losses and damages suffered by their cargoes.

Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or carrier, is not exempt from liability for damages arising from collision due to the fault or negligence of the captain. Primary liability is imposed on the shipowner or carrier in recognition of the universally accepted doctrine that the shipmaster or captain is merely the representative of the owner who has the actual or constructive control over the conduct of the voyage (Yeung Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).

There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does not specifically provide for the subject of collision, said Act in no uncertain terms, restricts its application "to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade." Under Section 1 thereof, it is explicitly provided that "nothing in this Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its application." By such incorporation, it is obvious that said law not only recognizes the existence of the Code of Commerce, but more importantly does not repeal nor limit its application.

On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety Corporation, has no cause of action against it because the latter did not prove that its alleged subrogers have either the ownership or special property right or beneficial interest in the cargo in question; neither was it proved that the bills of lading were transferred or assigned to the alleged subrogers; thus, they could not possibly have transferred any right of action to said plaintiff-appellee in this case. (Brief for the Maritime Company of the Philippines, p. 16).

The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly endorsed bills of lading covering the shipments in question and an examination of the invoices in particular, shows that the actual consignees of the said goods are the aforementioned companies. Moreover, no less than MCP itself issued a certification attesting to this fact. Accordingly, as it is undisputed that the insurer, plaintiff-appellee paid the total amount of P364,915.86 to said consignees for the loss or damage of the insured cargo, it is evident that said plaintiff-appellee has a cause of action to recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p. 43).

MCP next contends that it can not be liable solidarily with NDC because it is merely the manager and operator of the vessel Doña Nati, not a ship agent. As the general managing agent, according to MCP, it can only be liable if it acted in excess of its authority.

57

As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13, 1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include the concept of Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers of the owner of the vessel, including the power to contract in the name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the circumstances, MCP cannot escape liability.

It is well settled that both the owner and agent of the offending vessel are liable for the damage done where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of collision, both the owner and the agent are civilly responsible for the acts of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is true that the liability of the naviero in the sense of charterer or agent, is not expressly provided in Article 826 of the Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence under the Civil Code but more specially as regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the Court held that both the owner and agent (Naviero) should be declared jointly and severally liable, since the obligation which is the subject of the action had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner of the vessel, is liable to the shippers and owners of the cargo transported by it, for losses and damages occasioned to such cargo, without prejudice, however, to his rights against the owner of the ship, to the extent of the value of the vessel, its equipment, and the freight (Behn, Meyer Y Co. v. McMicking et al., 11 Phil. 276 [1908]).

As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the law on averages should be applied in determining their liability.

MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and corroborated no less by invoices offered as evidence during the trial. Besides, common carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barretto et al., (51 Phil. 90 [1927]) "cannot limit its liability for injury to a less of goods where such injury or loss was caused by its own negligence." Negligence of the captains of the colliding vessel being the cause of the collision, and the cargoes not being jettisoned to save some of the cargoes and the vessel, the trial court and the Court of Appeals acted correctly in not applying the law on averages (Articles 806 to 818, Code of Commerce).

MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima Maru and not to the Japanese Coast pilot navigating the vessel Doña Nati, need not be discussed lengthily as said claim is not only at variance with NDC's posture, but also contrary to the factual findings of the trial court affirmed no less by the Court of Appeals, that both pilots were at fault for not changing their excessive speed despite the thick fog obstructing their visibility.

Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow trans-shipment of the cargo, which simply means that the date of arrival of the ship Doña Nati on April 18, 1964 was merely tentative to give allowances for such contingencies that said vessel might not arrive on schedule at Manila and therefore, would necessitate the trans-shipment of cargo, resulting in consequent delay of their arrival. In fact, because of the collision, the cargo which was supposed to arrive in Manila on April 18, 1964 arrived only on June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in question been saved, they could have arrived in Manila on the above-mentioned dates. Accordingly, the complaint in the instant case was filed on April 22, 1965, that is, long before the lapse of one (1) year from the date the

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lost or damaged cargo "should have been delivered" in the light of Section 3, sub-paragraph (6) of the Carriage of Goods by Sea Act.

PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision of the respondent Appellate Court is AFFIRMED.

SO ORDERED.

Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

[G.R. No. 4510. December 19, 1908.]

THE CITY OF MANILA, plaintiff-appellee, vs. THE ATLANTIC, GULF AND PACIFIC COMPANY, defendant-appellant.

Hartigan, & Rohde, for appellant.

Modesto Reyes, for appellee.

SYLLABUS

1.SHIPS AND SHIPPING; COLLISION; DAMAGES; NEGLIGENCE. — Plaintiffs launch, with scows in tow, came into collision with a heavily laden lighter which was being towed by defendant's launch, and was damaged. Plaintiff's launch carried lights and both launch and scows were properly manned. The lighter carried no light, no crew, and had no rudder: Held, That the accident was due to negligence in failing to provide the lighter with the proper steering gear and helmsman, without which it was unmanageable.

D E C I S I O N

TRACEY, J p:

This is an appeal from a judgment of the Court of First Instance of the city of Manila awarding the plaintiff P1,020.50 damages for injuries to a launch in a collision.

On November 20, 1906, the plaintiff's launch Jan, towing six small scows up the River Pasig at Santa Ana came into collision with a large lighter, heavily laden, towed by the launch Oriente of the defendant. She was run aground with her frame near the port bow smashed in.

It is proved that the Jan carried lights; that both she and the scows she was towing were properly manned, and according to the testimony of the plaintiff's witnesses as soon as they saw the light ahead of the Oriente their whistle was blown and on receiving an answering whistle, in order to avoid a shock, they veered to starboard, leaving the channel and running into shoal water. Defendant's witnesses admit that they saw the Jan and its tow with the lights thereon and blew their own whistle, but say that they did not hear any whistle from the other launch, which kept the middle of the stream; that their boat was also put to

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starboard and the launches successfully passed one another, but. their scow in tow, being slow in changing direction, struck against the Jan, and they claim that they did all in their power to avoid a collision in-view of the difficulty of controlling the boat on their course downstream. It appears that this tow was secured to their launch by a single cable, forking in the shape of the letter "Y" so that each end was fastened to one side of the lighter.

The judge of the court below in rendering judgment for the plaintiff appears to have relied upon several incidents; that the captain of the Oriente had no license but only a permit to navigate from the surveyor of customs; that it was easier to control the boat going with the current than the one going against it; that there was but one tow rope when there might have been more, and that there was no helmsman on the lighter.

The testimony, however, of expert witnesses shows, and it is indeed of common knowledge, that a boat going against the current is quicker to mind her helm than one borne along by it, and the plaintiff's expert also testified that whereas in ocean tows several cables were used, on the River Pasig it was customary to employ but one in order to leave the vessel under tow greater freedom of movement and therefore better self-control.

Aboard this lighter there was no light, there was no crew, and it seems there was no rudder. The absence of the light may not have contributed to the accident, but the lack of a rudder and of any person to direct the boat so clearly deprived it of control of its own movements that we are satisfied that when under tow of the forked rope it was not handily manageable. Therefore, instead of following approximately in the wake of the launch, it struck out on a tangent thereto, thus causing the collision. We attach no importance to the character of the permit of the Oriente's captain as a cause of the accident.

The defendant has sought to show by witnesses that the channel was so obstructed by a boat alongside each bank a short distance from the scene of the accident that it was impossible for the Oriente and its tow to so maneuver as to escape the shock, but the testimony of these witnesses is not definite as to the location of these boats at the time of the accident, nor does the consequence sought to be deduced from their location, if proved, appear to us a necessary one. In our opinion the accident occurred for the reason that the scow of the defendant was unmanageable because she was not properly provided with helm and steersman. The judgment of the Court of First Instance is affirmed, with the costs of this instance. So ordered.

Arellano, C.J., Torres, Mapa, Johnson, Carson and Willard, JJ., concur.

[G.R. No. 18957. January 16, 1923.]

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. PHILIPPINE STEAMSHIP CO., INC., and FERNANDEZ HERMANOS, defendants. PHILIPPINE STEAMSHIP CO., INC., appellant.

Jose Varela Calderon and Fisher & DeWitt for appellant.

Attorney-General Villa-Real for appellee.

SYLLABUS

1.ADMIRALTY AND MARITIME LAW; COLLISION; SOLIDARY LIABILITY OF COLLIDING VESSELS. — Under articles 827 and 828 of the Code of Commerce, in case of a collision between two vessels at sea, both are solidarily liable for the loss of cargo carried by either,

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not only in the case where both vessels may be shown to be actually blameworthy but also in the case where it is obvious that only one was at fault but the proof does not show which.

2.ID.; ID.; ID.; RESPONSIBILITY OF VESSEL SURVIVING COLLISION. — Where two ships approaching each other at sea are both negligently managed, with the result that a collision occurs and one is sunk with total loss of both ship and cargo, the owner of the other vessel is liable to any shipper of cargo aboard the sunken vessel to the full extent of the value thereof; and it makes no difference that the negligence imputable to the two vessels may have differed somewhat in character and degree and that the negligence of the sunken ship was somewhat more marked than that of the other.

D E C I S I O N

STREET, J p:

In this action the Government of the Philippine Islands seeks to recover the sum of P14,648.25, the alleged value of 911 sacks of rice which were lost at sea on February 11, 1920, as a result of a collision between the steamer Antipolo, owned by the defendant company, and the vessel Isabel, upon which said rice was embarked. In the Court of First Instance judgment was entered for the recovery by the plaintiff from the Philippine Steamship Company, Inc., of the full amount claimed, with interest from the date of filing of the complaint. From this judgment said company appealed.

It appears in evidence that at about 10 o'clock at night on February 10, 1920, the coastwise vessel Isabel, equipped with motor and sails, left the port of Manila with primary destination to Balayan, Batangas, carrying, among its cargo, 911 sacks of rice belonging to the plaintiff and consigned to points in the south. After the boat had been under weigh for about four hours, and had passed the San Nicolas Light near the entrance into Manila Bay, the watch and the mate on the bridge of the Isabel discerned the light of another vessel, which proved to be the Antipolo, also a coastwise vessel, on its way to Manila and coming towards theIsabel. At about the same time both the watch and mate on the bridge of the Antipolo also saw the Isabel, the two vessels being then about one mile and a half or two miles apart. Each vessel was going approximately at the speed of 6 miles an hour, and in about ten minutes they had together traversed the intervening space and were in close proximity to each other.

When the mate of the Antipolo, who was then at the wheel, awoke to the danger of the situation and saw the Isabel "almost on top of him," to use the words of the committee on marine accidents reporting the incident, he put his helm hard to the starboard.

This maneuver was correct, and if the helmsman of the Isabel had done likewise, all would apparently have been well, as in that event the two vessels should have passed near to each other on the port side without colliding. As chance would have it, however, the mate on the Isabel at this critical juncture lost his wits and, in disregard of the regulations and of common prudence, at once placed his own helm hard to port, with the result that his boat veered around directly in the path of the other vessel and a collision became inevitable. Upon this the mate on the Antipolo fortunately stopped his engines, but the Isabel continued with full speed ahead, and the two vessels came together near the bows. The Isabel immediately sank, with total loss of vessel and cargo, though the members of her crew were picked up from the water and saved.

The trial judge was in our opinion entirely right in finding that negligence was imputable to both vessels, though differing somewhat in character and degree with respect to each. The mate of the Antipolo was clearly negligent in having permitted that vessel to

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approach directly towards the Isabel until the two were in dangerous proximity. For this there was no excuse whatever, since the navigable sea at this point is wide and the incoming steamer could easily have given the outgoing vessel a wide berth. On the other hand it is not clear that the Isabel was chargeable with negligence in keeping on its course; for this boat had its jib sail hoisted, and may for that reason be considered to have had the right of way. (G. Urrutia & Co. vs. Baco River Plantation Co., 26 Phil., 632.)

Negligence shortly preceding the moment of collision is, however, undoubtedly chargeable to the Isabel, for the incorrect and incompetent way in which this vessel was then handled. The explanation of this may perhaps be found in the fact that the mate on the Isabel had been on continuous duty during the whole preceding day and night; and being almost absolutely exhausted, he probably was either dozing or inattentive to duty at the time the other vessel approached.

It results, as already stated, that both vessels were at fault; and although the negligence on the part of the mate of the incoming vessel preceded the negligence on the part of the mate of the outgoing vessel by an appreciable interval of time, the first vessel cannot on that account be absolved from responsibility. Indeed, in G. Urrutia & Co. vs. Baco River Plantation Co., supra, this court found reason for holding that the responsibility rested exclusively on a steamer which had allowed dangerous proximity to a sailing vessel to be brought about under somewhat similar conditions.

We are of the opinion therefore that his Honor, the trial judge, committed no error in holding that both vessels were to blame and in applying article 827 of the Code of Commerce to the situation before him. It is there declared that where both vessels are to blame, both shall be solidarily responsible for the damage occasioned to their cargoes. As the Isabel was a total loss and cannot sustain any part of this liability, the burden of responding to the Government of the Philippine Islands, as owner of the rice embarked on the Isabel, must fall wholly upon the owner of the other ship, that is, upon the defendant, the Philippine Steamship Company, Inc.

Only one observation will be added, in response to one of the contentions of the appellant's attorneys, which is, that the application of article 827 of the Code of Commerce is not limited by article 828 to the case where it cannot be determined which of the two vessels was the cause of the collision. On the contrary article 828 must be considered as an extension of article 827 to an additional case. In other words, under the two articles combined the rule of liability announced in article 827 is applicable not only to the case where both vessels may be shown to be actually blameworthy but also to the case where it is obvious that only one was at fault but the proof does not show which.

The judgment appealed from must be affirmed; and it is so ordered with costs against the appellant.

Araullo, C.J., Johnson, Malcolm, Avanceña, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.

[G.R. No. 29166. October 22, 1928.]

AUGUSTO LOPEZ, plaintiff-appellant, vs. JUAN DURUELO, ET AL., defendants. ALBINO JISON, appellee.

Angel S. Gamboa for appellant.

Feria & La O for appellee.

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SYLLABUS

1.SHIPPING; COLLISION; PROTEST. — The protest required by article 835 of the Code of Commerce in case of collision between vessels is not necessary to preserve the rights of a person aboard a motor boat engaged in conveying passengers between ship and shore who is injured in a collision between the motor boat and the larger vessel.

2.ID.; ID.; ID.; CASE AT BAR. — A person desirous of embarking on a ship which was some distance away from the shore in a Philippine port took passage upon a small motor boat, which was used in conveying passengers and luggage to and fro between the shore and the shipside. Owing to the negligence of thepatron or incompetence of the person in charge — so the complaint averred — the boat approached too near to the stern of the ship, with the result that the propeller of the ship, which was still turning, struck the motor boat and sunk it, injuring the plaintiff. Held: Upon demurrer, that the failure of the complaint to allege that the plaintiff had made protest according to article 835 of the Code of Commerce was no impediment to the maintenance of a civil action, under articles 1902 and 1903 of the Civil Code, to recover damages for the tort.

3.ID.; ID.; ID.; MEANING OF WORD VESSEL. — The word "vessel " (Spanish, "buque," "nave") used in the Third Section of Title IV, Book Third, of the Code of Commerce, dealing with collisions, does not include all ships, craft or floating structures of any kind without limitation. The provisions of said section do not apply to minor craft engaged in river and bay traffic.

4.PLEADING AND PRACTICE; DEMURRER; INTERPRETATION OF PLEADING DEMURRED TO. — A case should not be dismissed on demurrer when, under any reasonable interpretation of the complaint, a cause of action can be made out; and the fact that a complaint is inartificially drawn or in a certain degree lacking in precision constitutes no sufficient reason for dismissing it on demurrer. In passing upon a demurrer, every reasonable intendment is to be taken in favor of the pleading against which the demurrer is directed.

D E C I S I O N

STREET, J p:

This action was instituted in the Court of First Instance of Occidental Negros by Augusto Lopez, for the purpose of recovering damages for personal injuries inflicted upon him by reason of the negligence of the defendants, Juan Duruelo and Albino Jison. The defendants demurred to the complaint, and the demurrer having been sustained, the plaintiff elected to stand upon his complaint, which was accordingly dismissed; and the plaintiff appealed.

The facts necessary to an understanding of the case as set out in the complaint are briefly these: On February 10, 1927, the plaintiff, who is a resident of the municipality of Silay, Occidental Negros, was desirous of embarking upon the interisland steamer San Jacinto in order to go to Iloilo. This boat was at the time in the anchoring ground of the port of Silay, some half a mile distant from the port. The plaintiff therefore embarked at the landing in the motor boat Jison, which was then engaged in conveying passengers and luggage back and forth from the landing to boats at anchor, and which was owned and operated by the defendant Albino Jison, with Juan Duruelo as patron. The engineer (maquinista) aboard on this trip was one Rodolin Duruelo, a boy of only 16 years of age. He is alleged to have been a mere novice without experience in the running of motor boats; and the day of the occurrence now in contemplation is said to have been the third day of his apprenticeship in this capacity.

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It is alleged that the Jison, upon this trip, was grossly overladen, having aboard fourteen passengers, while its capacity was only for eight or nine.

As the motor boat approached the San Jacinto in a perfectly quiet sea, it came too near to the stern of the ship, and as the propeller of the ship had not yet ceased to turn, the blades of the propeller struck the motor boat and sank it at once. It is alleged in the complaint that the approach of the Jison to this dangerous proximity with the propeller of the San Jacinto was due to the fault, negligence and lack of skill of the defendant Juan Duruelo, as patron of the Jison. As the Jison sank, the plaintiff was thrown into the water against the propeller, and the revolving blades inflicted various injuries upon him, consisting of a bruise in the breast, two serious fractures of the bones of the left leg, and a compound fracture of the left femur. As a consequence of these injuries the plaintiff was kept in bed in a hospital in the City of Manila from the 28th of February until October 19 of the year 1927, or approximately eight months. In the conclusion of his complaint the plaintiff sets out the various items of damage which he suffered, amounting in all to something more than P120,000. These damages he seeks to recover of the defendants in this action.

As a general ground of demurrer it is assigned by the defendants that the complaint does not show a right of action, and in the course of the argument submitted with the demurrer attention is directed to the fact that the complaint does not allege that a protest had been presented by the plaintiff, within twenty-four hours after the occurrence, to the competent authority at the port where the accident occurred. It is accordingly insisted that, under article 835 of the Code of Commerce, the plaintiff has shown no cause of action.

Assuming that the article of the Code of Commerce relied upon states a condition precedent to the maintenance of an action in a case where protest is required and that the making of protest must be alleged in the complaint in order to show a good cause of action — an assumption that is possibly without basis, for the reason that lack of protest in a case where protest is necessary would seem to supply matter of defense proper to be set up in the answer, — we nevertheless are of the opinion that protest was not necessary in the case now before us. The article in question (835, Code of Com.) in found in the section dealing with collisions, and the context shows the collisions intended are collisions of sea-going vessels. Said article cannot be applied to small boats engaged in river and bay traffic. The Third Book of the Code of Commerce, dealing with Maritime Commerce, of which the section on Collisions forms a part, was evidently intended to define the law relative to merchant vessels and marine shipping; and, as appears from said Code, the vessels intended in that Book are such as are run by masters having special training, with the elaborate apparatus of crew and equipment indicated in the Code. The word "vessel" (Spanish, "buque," "nave"), used in the section referred to was not intended to include all ships, craft or floating structures of every kind without limitation, and the provisions of that section should not be held to include minor craft engaged only in river and bay traffic. Vessels which are licensed to engage in maritime commerce, or commerce by sea, whether in foreign or coastwise trade, are no doubt regulated by Book III of the Code of Commerce. Other vessels of a minor nature not engaged in maritime commerce, such as river boats and those carrying passengers from ship to shore, must be governed, as to their liability to passengers, by the provisions of the Civil Code or other appropriate special provisions of law.

This conclusion is substantiated by the writer Estasen who makes comment upon the word "vessel" to the following effect:

"When the mercantile codes speak of vessels, they refer solely and exclusively to merchant ships, as they do not include war ships, and furthermore, they almost always refer to craft which are not accessory to another as is the case of launches, lifeboats, etc. Moreover, the mercantile laws, in making use of the words ship, vessel, boat, embarkation, etc., refer exclusively to those which are engaged in the transportation of passengers and freight from one port to another or from one place to another; in a word, they refer to merchant vessels and in no way can they or should they be understood as referring to pleasure craft, yachts, pontoons, health service and harbor police vessels, floating

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storehouses, warships or patrol vessels, coast guard vessels, fishing vessels, towboats, and other craft destined to other uses, such as for instance coast and geodetic survey, those engaged in scientific research and exploration, craft engaged in the loading and discharge of vessels from same to shore or docks, or in transhipment and those small craft which in harbors, along shore, bays, inlets, coves and anchorages are engaged in transporting passengers and baggage." (Estasen, Der. Mer., vol. IV, p. 195.)

In Yu Con vs. Ipil (41 Phil., 770), this court held that a small vessel used for the transportation of merchandise by sea and for the making of voyages from one port to another of these Islands, equipped and victualed for this purpose by its owner, is a vessel, within the purview of the Code of Commerce, for the determination of the character and effect of the relations created between the owners of the merchandise laden on it and its owner. In the case before us the Jison, as we are informed in the complaint, was propelled by a second-hand motor, originally used for a tractor plow; and it had a capacity for only eight persons. The use to which it was being put was the carrying of passengers and luggage between the landing at Silay and ships in the harbor. This was not such a boat as is contemplated in article 835 of the Code of Commerce, requiring protest in case of collision.

In Yu Con vs. Ipil, supra, the author of the opinion quotes a passage from the treatise on Mercantile Law by Blanco. We now have before us the latest edition of Blanco, and we reproduce here, in both Spanish and English, not only the passage thus quoted but also the sentence immediately following said passage; and this latter part of the quotation is quite pertinent to the point now under consideration.

Says Blanco:

"Las palabras 'nave' y 'buque, en su sentido gramatical, se aplican para designar cualquier clase de embarcaciones, grandes o pequeiias, mercantes o de guerra, significacion que no difiere esencialmente de la juridica, con arreglo a la cual se consideran buques para los efectos del Codigo y del Reglamento para la organizacion del Registro mercantil, no solo las embarcaciones destinadas a la navegacion de cabotaje o altura, sino tambien los diques flotantes, pontones, dragas, ganguiles y cualquier otro aparato flotante destinado a servicios de la industria o del comercio maritimo.

"Aun cuando, conforme a este concepto legal, parece que todo aparato flotante que sirve directamente para el trasporte de cosas o personas, o que indirectamente se relacionen con esta industria, han de sujetarse a los preceptos del Codigo sobre propiedad, transmision, derechos, inscripciones, etc., entendemos con el Sr. Benito (obra cit.) y asi ocurre en la practica, que no son aplicables a las pequeñas embarcaciones, que solo estan sujetas a los de la administracion de marina para el servicio de los puQrtos o ejercicio de la industria de la pesca." (Blanco, Der. Mer., vol. II, pag. 22.)

"The words 'ship' (nave) and 'vessel' (buque), in their grammatical sense, are applied to designate every kind of craft, large or small, merchant vessels or war vessels, a signification which does not differ essentially from its juridical meaning, according to which vessels for the purposes of the Code and Regulations for the organization of the Mercantile Registry, are considered not only those engaged in navigation, whether coastwise or on the high seas, but also floating docks, pontoons, dredges, scows and any other floating apparatus destined for the service of the industry or maritime commerce.

"Yet notwithstanding these principles from which it would seem that any floating apparatus which serves directly for the transportation of things or persons or which indirectly is related to this industry, ought to be subjected to the principles of the Code with reference to ownership, transfer, rights, registration, etc., we agree with Benito (cobra cit.) and it so happens in practice that they are not applicable to small craft which are only subject to administrative (customs) regulations in the matter of port service and in the fishing industry."

We may add that the word "nave" in Spanish, which is used interchangeably with "buque" in the Code of Commerce, means, according to the Spanish-English Dictionary compiled by Edward R. Bensley and published at Paris in the year 1896, "Ship, a vessel with

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decks and sails." Particularly significant in this definition is the use of the word "decks," since a deck is not a feature of the smallest types of water craft.

In this connection a most instructive case from a Federal Court in the United States is that of The Mamie (5 Fed., 813), wherein it was held that only vessels engaged in what is ordinarily known as maritime commerce are within the provisions of law conferring limited liability on the owner in case of maritime disaster. In the course of the opinion in that case the author cites the analogous provisions in the laws of foreign maritime nations, especially the provisions of the Commercial Code of France; and it is observed that the word "vessel" in these codes is limited to ships and other sea-going vessels. "Its provisions are not applicable," said the court, "to vessels in inland navigation, which are especially designated by the name of boats." Quoting from the French author Dufour (1 Droit Mer. 121), the writer of the opinion in the case cited further says: "Thus, as a general rule, it appears to me clearly, both by the letter and spirit of the law, that the provisions of the Second Book of the Commercial Code [French] relate exclusively to maritime and not to fluvial navigation; and that consequently the word 'ship,' when it is found in these provisions, ought to be understood in the sense of a vessel serving the purpose of maritime navigation or seagoing vessel, and not in the sense of a vessel devoted to the navigation of rivers."

It is therefore clear that a passenger on a boat like the Jison, in the case before us, is not required to make protest as a condition precedent to his right of action for the injury suffered by him in the collision described in the complaint. In other words, article 835 of the Code of Commerce does not apply. But even if said provision had been considered applicable to the case in hand, a fair interpretation of the allegations of the complaint indicates, we think, that the injuries suffered by the plaintiff in this case were of such a nature as to excuse protest; for, under article 836, it is provided that want of protest cannot prejudice a person not in a condition to make known his wishes. An individual who has suffered a compound fracture of the femur and received other physical injuries sufficient to keep him in a hospital for many months, cannot be supposed to have been in a condition to make protest within twenty-four hours of such occurrence. It follows that the demurrer in this case was not well taken and should have been overruled.

In their brief in this court the attorneys for the defendant have criticized the complaint for a general lack of certainty and precision in more than one respect. However, we have read the document attentively and, in our opinion, it states a good cause of action upon a civil liability arising from tort under articles 1902 and 1903 of the Civil Code, and our attention has not been drawn to any provision of law which would constitute an obstacle to the maintenance of the action.

We have repeatedly called the attention of trial courts to the general rule that a case should not be dismissed on demurrer when, under any reasonable interpretation of the complaint, a cause of action can be made out; and the fact that a complaint is inartificially drawn or in a certain degree lacking in precision constitutes no sufficient reason for dismissing it. In passing upon a demurrer, every reasonable intendment is to be taken in favor of the pleader. In this connection it should be borne in mind that if a complaint does not show a good cause of action, the action can be dismissed at a later stage of the proceedings; and even where no objection has been previously made, the point can be raised in the Supreme Court under section 93 of the Code of Civil Procedure (Abiera vs. Orin, 8 Phil., 193). Little or no appreciable prejudice to the defendant will therefore ordinarily result from overruling a demurrer, and no harm is done to anyone by requiring the defendant to answer. On the contrary, grave prejudice may result to a plaintiff from the erroneous sustaining of a demurrer, because of the delay and even expense necessary to set the matter right upon appeal.

The judgment appealed from is reversed, the demurrer overruled, and the defendant is required to answer the complaint within five days after notification of the return of this decision to the court of origin. So ordered, with costs against the appellee.

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Johnson, Malcolm, Villamor and Romualdez, JJ., concur.

Ostrand, J., concurs in the result.

[G.R. No. 13422. November 8, 1918.]

THE MARINE TRADING COMPANY (INC.), plaintiff-appellee, vs. THE GOVERNMENT OF THE PHILIPPINE ISLANDS, defendant-appellant.

Acting Attorney-General Gloria, for appellant.

Crossfield & O'Brien, for appellee.

SYLLABUS

1.DAMAGES; NEGLIGENCE; COLLISION BETWEEN LAUNCHES. — Since the accident which caused the sinking of one launch occurred through the negligence only of the other launch. Held: That under the law the plaintiff can recover his damages.

2.INTEREST AGAINST THE GOVERNMENT OF THIS PHILIPPINE ISLANDS. — The State never pays interest unless it expressly engages to do so.

3.COSTS AGAINST THE GOVERNMENT OF THE PHILIPPINE ISLANDS. — The State is not liable for costs unless the statute expressly makes it so.

4.INTEREST; COSTS; APPLICATION OF RULES TO FACTS. — Act No. 2630, empowering the Marine Trading Company (Inc.) to institute suit against the Government of the Philippine Islands, only authorized the court to fix the damages, if any, and to enter judgment accordingly. Since damages cannot be interpreted to include interest and costs without straining the meaning, and since the government has not stipulated to pay interest or costs, these items cannot be recovered by the plaintiff.

D E C I S I O N

MALCOLM, J p:

Act No. 2630 empowered the Marine Trading Company (Inc.) to bring action in the Court of First Instance for the city of Manila to determine the responsibility and liability for a collision between its launch Active and a scow towed by the Government launch Bohol, and to fix the damages, if any, to which the Marine Trading Company (Inc.) is entitled on account of the collision. Acting under this authority, the Marine Trading Company (Inc.) began action to recover as damages from the Government of the Philippine Islands the sum of P9,677, with interest and costs, because of the reckless and negligent acts of the defendant's agent and employee. The Attorney-General interposed a general denial. Judgment was rendered by the Honorable George R. Harvey, judge of first instance, for the amount prayed for by plaintiff, with legal interest from September 25, 1916, the date of filing the complaint, and costs of suit.

On August 10, 1915, plaintiff owned a launch named Active and defendant owned a launch named Bohol. Both launches were in use upon the Pasig River in the city of Manila.

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About 8 o'clock in the morning of this date, in the Pasig River, below and near the bridge of Spain, the launch Bohol was towing up the river two rudderless scows or lighters, one behind the other. The scow nearest the launch was about 5 meters behind, was empty, and was high in the water. The second lighter was tied to the rear of the first one, with a distance of about 2 meters intervening, was loaded, and was lower in the water. The Active was coming down the river from Pandacan toward Manila Bay. The patron of the Active blew one blast of his whistle, and the patron of the Bohol answered with one whistle, which indicated that the Active had a clear way and should pass to starboard. When under the bridge of Spain, the Active passed the Bohol and the first scow towed by it. But when the Active was about to pass the second scow, the latter swerved to the left, and its forward left end corner struck the Active on the port side between the cabin and the bow with such force and impact that the launch sank immediately.

The Active was in good condition and state of operation before the collision occurred. The launch was so seriously damaged by the collision and the sinking that it took the sum of P9,677 to repair it.

The applicable provisions of law are found in Articles 826, 827, 828, and 830 of the Code of Commerce, and in the Philippine Marine Regulations issued by the Insular Collector of Customs. These provisions of law and these regulations, in relation to the facts, present the issue of whether or not the accident occurred through the negligence of the Bohol only, or whether both launches can be blamed for the collision. If the first be the holding, then, under the law, plaintiff can recover. If the second be the result, plaintiff cannot recover.

The trial court was clearly of the opinion that there was negligence on the part of the patron of the Bohol in operating his launch and the scow in such a way as to endanger the Active and its occupants. The court was further of the opinion that there was no negligence on the part of the patron of the Active. With this view of the trial court, we are in accord.

Negligence on the part of the Bohol is demonstrated by the following:

(1)The patron of the Bohol gave the whistle which indicated that the Active had a clear way and should pass to the starboard, and did not give four blasts of the whistle in quick succession in order to denote danger.

(2)The two scows in tow by the Bohol were apparently not properly fastened together, as required by Section 197 of the Philippine Marine Regulations.

(3)The two launches passed each other under the bridge of Spain, and the Bohol, instead of steering so as to avoid danger of a collision between theActive and its scows, kept its course and crowded the Active almost against a buoy. While, in accordance with paragraph 163 of the Philippine Marine Regulations, steam vessels towing have the right of way over steam vessels not towing this does not mean that the vessel with a tow can usurp the entire river so as to force another vessel into the bank. In conformity with the doctrine cited by appellant, that the preferred steamer will not be held in fault for maintaining her course and speed, this is only true so long as it is possible for the other vessel to avoid her by the proper maneuver. (The Delaware [1895], 161 U.S., 459.)

As opposed to the foregoing, we find that the plaintiff's agent was in no way to blame for the collision.

This disposes of the three assignments of error and the principal issue in the case. It is to be noted, however, that the judgment was for legal interest and costs. Is this right ?

It is the undoubted law that the State (in this jurisdiction, the Government of the Philippine Islands) never pays interest unless it expressly engages to do so. This is especially true in case the claim is an unliquidated one. Among other authorities, we find Angarica vs. Bayard ([1888], 127 U.S., 251), in which Justice Blatchford said:

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"The case, therefore, falls within the well-settled principle, that the United States are not liable to pay interest on claims against them, in the absence of express statutory provision to that effect. It has been established, as a general rule, in the practice of the government, that interest is not allowed on claims against it, whether such claims originate in contract or in tort, and whether they arise in the ordinary business of administration or under private acts of relief, passed by Congress on special application. The only recognized exceptions are where the government stipulates to pay interest and where interest is given expressly by an Act of Congress, either by the name of interest or by that of damages."

The rule is equally well established that the State is not liable for costs unless the statute expressly makes it so.

Here, Act No. 2630 only authorized the court to fix the damages if any, and to enter judgment accordingly. Unless damages can be interpreted to include interest and costs, plaintiff cannot recover the same. This appearing to be a strained interpretation, we believe we should hold to the view that since the government has not stipulated to pay interest or costs, the courts should not include these items in the judgment. (See generally, 11 Encyclopedia of U.S. Supreme Court Reports, pp. 775-777; Marine vs. Lyon [1894], 62 Fed., 153; McMaster vs. State, [1888] 108 N.Y., 542; Annotated Cases [1914A], p. 361; Hongkong and Shanghai Banking Corporation vs. Rafferty [1918], p. 145, post.)

With the elimination of so much of the judgment as provides for interest and costs, judgment is affirmed, without special finding as to costs in this instance. So ordered.

Arellano, C. J., Torres, Araullo, Street and Fisher, JJ., concur.

[G.R. No. 56294. May 20, 1991.]

SMITH BELL AND COMPANY (PHILIPPINES), INC. and TOKYO MARINE AND FIRE INSURANCE CO., INC., petitioners, vs. THE COURT OF APPEALS and CARLOS A. GO THONG AND CO., respondents.

Bito, Misa & Lozada for petitioners.

Rodriguez, Relova & Associates for private respondent.

SYLLABUS

1.REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENT; SUPREME COURT NOT COMPELLED TO ADOPT A DEFINITE AND STRINGENT RULE ON HOW ITS JUDGMENT SHALL BE FRAMED; EFFECT OF DISMISSAL OR GRANT OF A PETITION FOR REVIEW ON CERTIORARI BY A MINUTE RESOLUTION OF THE COURT. —That this Court denied Go Thong's Petition for Review in a minute Resolution did not in any way diminish the legal significance of the denial so decreed by this Court. The Supreme Court is not compelled to adopt a definite and stringent rule on how its judgment shall be framed. It has long been settled that this Court has discretion to decide whether a "minute resolution" should be used in lieu of a full-blown decision in any particular case and that a minute Resolution of dismissal of a Petition for Review on Certiorari constitutes an adjudication on the merits of the controversy or subject matter of the Petition. It has been stressed by the Court that the grant of due course to a Petition for Review is "not a matter of right, but of sound judicial discretion; and so there is no need to fully explain the Court's denial. For one thing, the facts and law are already mentioned in the Court of Appeals' opinion." A minute Resolution denying a Petition for Review of a Decision of the Court of Appeals can only mean that the Supreme Court

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agrees with or adopts the findings and conclusions of the Court of Appeals, in other words, that the Decision sought to be reviewed and set aside is correct.

2. ID.; ID.; ID.; RES JUDICATA; ABSENCE OF IDENTITY OF SUBJECT MATTER, THERE BEING SUBSTANTIAL IDENTITY OF PARTIES AND IDENTITY OF CAUSE OF ACTION, WILL NOT PRECLUDE APPLICATION THEREOF. — It is conceded by petitioners that the subject matters of the two (2) suits were not identical, in the sense that the cargo which had been damaged in the one case and for which indemnity was sought, was not the very same cargo which had been damaged in the other case indemnity for which was also sought. The cause of action was, however, the same in the two (2) cases, i.e., the same right of the cargo owners to the safety and integrity of their cargo had been violated by the same casualty, the ramming of the "Yotai Maru" by the "Don Carlos." The judgments in both cases were final judgments on the merits rendered by the two (2) divisions of the Court of Appeals and by the Supreme Court, the jurisdiction of which has not been questioned. Under the circumstances, we believe that the absence of identity of subject matter, there being substantial identity of parties and identity of cause of action, will not preclude the application of res judicata.

3.ID.; ID.; ID.; ID.; CASE AT BAR. — In the case at bar, the issue of which vessel ("Don Carlos" or "Yotai Maru") had been negligent, or so negligent as to have proximately caused the collision between them, was an issue that was actually, directly and expressly raised, controverted and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J. resolved that issue in his Decision and held the "Don Carlos" to have been negligent rather than the "Yotai Maru" and, as already noted, that Decision was affirmed by this Court in G.R. No. L-48839 in a Resolution dated 6 December 1978. The Reyes Decision thus became final and executory approximately two (2) years before the Sison Decision, which is assailed in the case at bar, was promulgated. Applying the rule of conclusiveness of judgment, the question of which vessel had been negligent in the collision between the two (2) vessels, had now long been settled by this Court and could no longer be relitigated in C.A.-G.R. No. 61206-R. Private respondent Go Thong was certainly bound by the ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of Appeals fell into clear and reversible error when it disregarded the Decision of this Court affirming the Reyes Decision.

4.ID.; EVIDENCE; ADMISSIONS; RULE ON COMPROMISES, EXPLAINED; RULE ANCHORED ON PUBLIC POLICY THAT INCIDENCE OF LITIGATION SHOULD BE REDUCED AND ITS DURATION SHORTENED TO THE MAXIMUM EXTENT FEASIBLE. — The familiar rule is that "an offer of compromise is not an admission that anything is due, and is not admissible in evidence against the person making the offer." A compromise is an agreement between two (2) or more persons who, in order to forestall or put an end to a law suit, adjust their differences by mutual consent, an adjustment which every one of them prefers to the hope of gaining more, balanced by the danger of losing more. An offer to compromise does not, in legal contemplation, involve an admission on the part of a defendant that he is legally liable, not on the part of a plaintiff that his claim or demand is groundless or even doubtful, since the compromise is arrived at precisely with a view to avoiding further controversy and saving the expenses of litigation. It is of the very nature of an offer of compromise that it is made tentatively, hypothetically and in contemplation of mutual concessions. The above rule on compromises is anchored on public policy of the most insistent and basic kind: that the incidence of litigation should be reduced and its duration shortened to the maximum extent feasible.

5.CIVIL LAW; QUASI-DELICT; NEGLIGENCE; FACTORS CONSTITUTIVE THEREOF WHICH NEGLIGENCE WAS THE PROXIMATE CAUSE OF THE COLLISION; FIRST FACTOR WAS FAILURE ON THE PART OF PRIVATE RESPONDENT'S VESSEL TO COMPLY WITH RULES 18(a) AND 28 (c) OF THE INTERNATIONAL RULES OF THE ROAD. — The Court believes that there are three (3) principal factors which are constitutive of negligence on the part of the "Don Carlos," which negligence was the proximate cause of the collision. The first of these factors was the failure of the "Don Carlos" to comply with the requirements of Rule 18 (a) of the International Rules of the Road

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("Rules"), which provides as follows: (a) When two power-driven vessels are meeting end on, or nearly end on, so as to involve risk of collision, each shall alter her course to starboard, so that each may pass on the port side of the other. The "Don Carlos" also violated Rule 28 (c) for it failed to give the required signal of two (2) short horn blasts meaning "I am altering my course to port." When the "Yotai Maru" saw that the "Don Carlos" was turning to port, the master of the "Yotai Maru" ordered the vessel turned "hard starboard" at 3:45 a.m. and stopped her engines; at about 3:46 a.m., the "Yotai Maru" went "full astern engine." The collision occurred at exactly 3:50 a.m.

6. ID.; ID.; ID.; ID.; SECOND FACTOR WAS FAILURE ON THE PART OF PRIVATE RESPONDENT'S VESSEL TO HAVE ON BOARD A "PROPER LOOK-OUT"; CASE AT BAR. — The second circumstance constitutive of negligence on the part of the "Don Carlos" was its failure to have on board that night a "proper look-out" as required by Rule I (B) of the International Rules of the Road. Under Rule 29 of the same set of Rules, all consequences arising from the failure of the "Don Carlos" to keep a "proper look-out" must be born by the "Don Carlos." In the case at bar, the failure of the "Don Carlos" to recognize in a timely manner the risk of collision with the "Yotai Maru" coming in from the opposite direction, was at least in part due to the failure of the "Don Carlos" to maintain a proper look-out.

7.ID.; ID.; ID.; ID.; THIRD FACTOR RELATES TO THE FACT THAT THE SECOND MATE WAS, IMMEDIATELY BEFORE AND DURING THE COLLISION, IN COMMAND OF PRIVATE RESPONDENT'S VESSEL. — The third factor constitutive of negligence on the part of the "Don Carlos" relates to the fact that Second Mate Benito German was, immediately before and during the collision, in command of the "Don Carlos." Second Mate German simply did not have the level of experience, judgment and skill essential for recognizing and coping with the risk of collision as it presented itself that early morning when the "Don Carlos," running at maximum speed and having just overtaken the "Don Francisco" then approximately one mile behind to the starboard side of the "Don Carlos," found itself head-on or nearly head-on vis-a-vis the "Yotai Maru." It is essential to point out that this situation was created by the "Don Carlos" itself.

D E C I S I O N

FELICIANO, J p:

In the early morning of 3 May 1970 — at exactly 0350 hours, on the approaches to the port of Manila near Caballo Island, a collision took place between the M/V "Don Carlos," an inter-island vessel owned and operated by private respondent Carlos A. Go Thong and Company ("Go Thong"), and the M/S "Yotai Maru," a merchant vessel of Japanese registry. The "Don Carlos" was then sailing south bound leaving the port of Manila for Cebu, while the "Yotai Maru" was approaching the port of Manila, coming in from Kobe, Japan. The bow of the "Don Carlos" rammed the portside (left side) of the "Yotai Maru" inflicting a three (3) cm. gaping hole on her portside near Hatch No. 3, through which seawater rushed in and flooded that hatch and her bottom tanks, damaging all the cargo stowed therein.  Cdpr

The consignees of the damaged cargo got paid by their insurance companies. The insurance companies in turn, having been subrogated to the interests of the consignees of the damaged cargo, commenced actions against private respondent Go Thong for damages sustained by the various shipments in the then Court of First Instance of Manila.

Two (2) cases were filed in the Court of First Instance of Manila. The first case, Civil Case No. 82567, was commenced or 13 March 1971 by petitioner Smith Bell and Company (Philippines),

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Inc. and Sumitomo Marine and Fire Insurance Company Ltd., against private respondent Go Thong, in Branch 3, which was presided over by Judge Bernardo P. Fernandez. The second case, Civil Case No. 82556, was filed on 15 March 1971 by petitioners Smith Bell and Company (Philippines), Inc. and Tokyo Marine and Fire Insurance Company, Inc. against private respondent Go Thong in Branch 4, which was presided over by then Judge, later Associate Justice of this Court, Serafin R. Cuevas.  LLpr

Civil Cases Nos. 82567 (Judge Fernandez) and 82556 (Judge Cuevas) were tried under the same issues and evidence relating to the collision between the "Don Carlos" and the "Yotai Maru" the parties in both cases having agreed that the evidence on the collision presented in one case would be simply adopted in the other. In both cases, the Manila Court of First Instance held that the officers and crew of the "Don Carlos" had been negligent, that such negligence was the proximate cause of the collision and accordingly held respondent Go Thong liable for damages to the plaintiff insurance companies. Judge Fernandez awarded the insurance companies P19,889.79 with legal interest plus P3,000.00 as attorney's fees; while Judge Cuevas awarded the plaintiff insurance companies on two (2) claims US$68,640.00 or its equivalent in Philippine currency plus attorney's fees of P30,000.00, and P19,163.02 plus P5,000.00 as attorney's fees, respectively.

The decision of Judge Fernandez in Civil Case No. 82567 was appealed by respondent Go Thong to the Court of Appeals, and the appeal was there docketed as C.A.-G.R. No. 61320-R. The decision of Judge Cuevas in Civil Case No. 82556 was also appealed by Go Thong to the Court of Appeals, the appeal being docketed as C.A.-G.R. No. 61206-R. Substantially identical assignments of errors were made by Go Thong in the two (2) appealed cases before the Court of Appeals.

In C.A.-G.R. No. 61320-R, the Court of Appeals through Reyes, L.B., J., rendered a Decision on 8 August 1978 affirming the Decision of Judge Fernandez. Private respondent Go Thong moved for reconsideration, without success. Go Thong then went to the Supreme Court on Petition for Review, the Petition being docketed as G.R. No. L-48839 ("Carlos A. Go Thong and Company v. Smith Bell and Company [Philippines], Inc., et al."). In its Resolution dated 6 December 1978, this Court, having considered "the allegations, issues and arguments adduced in the Petition for Review on Certiorari, of the Decision of the Court of Appeals as well as respondent's comment", denied the Petition for lack of merit. Go Thong filed a Motion for Reconsideration; the Motion was denied by this Court on 24 January 1979.

In the other (Cuevas) case, C.A.-G.R. No. 61206-R, the Court of Appeals, on 26 November 1980 (or almost two [2] years after the Decision of Reyes, L.B., J., in C.A.-G.R. No. 61320-R, had been affirmed by the Supreme Court on Petition for Review) through Sison, P.V., J., reversed the Cuevas Decision and held the officers of the "Yotai Maru" at fault in the collision with the "Don Carlos," and dismissed the insurance companies' complaint. Herein petitioners asked for reconsideration, to no avail.

The insurance companies are now before us on Petition for Review on Certiorari, assailing the Decision of Sison, P.V., J., in C.A.-G.R. No. 61206-R. Petitioners' principal contentions are:

a.that the Sison Decision had disregarded the rule of res judicata;

b.that Sison P.V., J., was in serious and reversible error in accepting Go Thong's defense that the question of fault on the part of the "Yotai Maru" had been settled by the compromise agreement between the owner of the "Yotai Maru" and Go Thong as owner of the "Don Carlos;" and

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c.that Sison, P.V., J., was in serious and reversible error in holding that the "Yotai Maru" had been negligent and at fault in the collision with the "Don Carlos."

I

The first contention of petitioners is that Sison, P.V., J. in rendering his questioned Decision, failed to apply the rule of res judicata. Petitioners maintain that the Resolution of the Supreme Court dated 6 December 1978 in G.R. No. 48839 which dismissed Go Thong's Petition for Review of the Decision of Reyes, L.B., J., in C.A.-G.R. No. 61320-R, had effectively settled the question of liability on the part of the "Don Carlos." Under the doctrine of res judicata, petitioners contend, Sison, P.V., J.should have followed the Reyes, L.B., J. Decision since the latter had been affirmed by the Supreme Court and had become final and executory long before the Sison Decision was rendered.

Private respondent Go Thong, upon the other hand, argues that the Supreme Court, in rendering its minute Resolution in G.R. No. L-48839, had merely dismissed Go Thong's Petition for Review of the Reyes, L.B., J. Decision for lack of merit but had not affirmed in toto that Decision. Private respondent, in other words, purports to distinguish between denial of a Petition for Review for lack of merit and affirmance of the Court of Appeals' Decision. Thus, Go Thong concludes, this Court did not hold that the "Don Carlos" had been negligent in the collision.

Private respondent's argument must be rejected. That this Court denied Go Thong's Petition for Review in a minute Resolution did not in any way diminish the legal significance of the denial so decreed by this Court. The Supreme Court is not compelled to adopt a definite and stringent rule on how its judgment shall be framed. 1It has long been settled that this Court has discretion to decide whether a "minute resolution" should be used in lieu of a full-blown decision in any particular case and that a minute Resolution of dismissal of a Petition for Review on Certiorari constitutes an adjudication on the merits of the controversy or subject matter of the Petition. 2 It has been stressed by the Court that the grant of due course to a Petition for Review is "not a matter of right, but of sound judicial discretion; and so there is no need to fully explain the Court's denial. For one thing, the facts and law are already mentioned in the Court of Appeals' opinion." 3 A minute Resolution denying a Petition for Review of a Decision of the Court of Appeals can only mean that the Supreme Court agrees with or adopts the findings and conclusions of the Court of Appeals, in other words, that the Decision sought to be reviewed and set aside is correct. 4

Private respondent Go Thong argues also that the rule of res judicata cannot be invoked in the instant case whether in respect of the Decision of Reyes, L.B., J. or in respect of the Resolution of the Supreme Court in G.R. No. L-48839, for the reason that there was no identity of parties and no identity of cause of action between C.A.-G.R. No. 61206-R and C.A.-G.R. No. 61320-R.

The parties in C.A.-G.R. No. 61320-R where the decision of Judge Fernandez was affirmed, involved Smith Bell and Company (Philippines), Inc., and Sumitomo Marine and Fire Insurance Co., Ltd. while the petitioners in the instant case (plaintiffs below) are Smith Bell and Co. (Philippines), Inc. and Tokyo Marine and Fire Insurance Co., Ltd. In other words, there was a common petitioner in the two (2) cases, although the co-petitioner in one was an insurance company different from the insurance company co-petitioner in the other case. It should be noted, moreover, that the co-petitioner in both cases was an insurance company and that both petitioners in the two (2) cases represented the same interest, i.e., the cargo owner's interest as against the hull interest or the interest of the shipowner. More importantly, both cases had been brought against the same defendant, private respondent Go Thong, the owner of the vessel "Don Carlos." In sum, C.A.-G.R. No. 61320-R and C.A.-G.R. No. 61206-R exhibited substantial identity of parties. LLpr

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It is conceded by petitioners that the subject matters of the two (2) suits were not identical, in the sense that the cargo which had been damaged in the one case and for which indemnity was sought, was not the very same cargo which had been damaged in the other case indemnity for which was also sought. The cause of action was, however, the same in the two (2) cases, i.e., the same right of the cargo owners to the safety and integrity of their cargo had been violated by the same casualty, the ramming of the "Yotai Maru" by the "Don Carlos." The judgments in both cases were final judgments on the merits rendered by the two (2) divisions of the Court of Appeals and by the Supreme Court, the jurisdiction of which has not been questioned.

Under the circumstances, we believe that the absence of identity of subject matter, there being substantial identity of parties and identity of cause of action, will not preclude the application of res judicata. 5

In Tingson v. Court of Appeals, 6 the Court distinguished one from the other the two (2) concepts embraced in the principle of res judicata, i.e., "bar by former judgment" and "conclusiveness of judgment:"

"There is no question that where as between the first case where the judgment is rendered and the second case where such judgment is invoked, there is identity of parties, subject-matter and cause of action, the judgment on the merits in the first case constitutes an absolute bar to the subsequent action not only as to every matter which was offered and received to sustain or defeat the claim or demand, but also as to any other admissible matter which might have been offered for that purpose and to all matters that could have been adjudged in that case. This is designated as 'bar by former judgment.'

But where the second action between the same parties is upon a different claim or demand, the judgment in the prior action operates as an estoppel only as to those matters in issue or points controverted, upon the determination of which the finding or judgment was rendered. In fine, the previous judgment is conclusive in the second case, only as those matters actually and directly controverted and determined and not as to matters merely involved therein. This is the rule on 'conclusiveness of judgment' embodied in subdivision (c) of Section 49 of Rule 39 of the Revised Rules of Court." 7 (Citations omitted) (Emphases supplied)

In Lopez v. Reyes, 8 the Court elaborated further the distinction between bar by former judgment which bars the prosecution of a second action upon the same claim, demand or cause of action, and conclusiveness of judgment which bars the relitigation of particular facts or issues in another litigation between the same parties on a different claim or cause of action:

"The doctrine of res judicata has two aspects. The first is the effect of a judgment as a bar to the prosecution of a second action upon the same claim, demand or cause of action. The second aspect is that it precludes the relitigation of a particular fact or issues in another action between the same parties on a different claim or cause of action.

The general rule precluding the relitigation of material facts or questions which were in issue and adjudicated in former action are commonly applied to all matters essentially connected with the subject matter of the litigation. Thus, it extends to questions 'necessarily involved in an issue, and necessarily adjudicated, or necessarily implied in the final judgment, although no specific finding may have been made in reference thereto, and although such matters were directly referred to in the pleadings and were not actually or formally presented. Under this rule, if the record of the former trial shows that the judgment could not have been rendered without deciding the particular matter, it will be considered as having settled that matter as to all future actions between the parties, and if a judgment necessarily presupposes certain premises, they are as conclusive as the

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judgment itself. Reasons for the rule are that a judgment is an adjudication on all the matters which are essential to support it, and that every proposition assumed or decided by the court leading up to the final conclusion and upon which such conclusion is based is as effectually passed upon as the ultimate question which is finally solved.'" 9 (citations omitted) (Emphases supplied)

In the case at bar, the issue of which vessel ("Don Carlos" or "Yotai Maru") had been negligent, or so negligent as to have proximately caused the collision between them, was an issue that was actually, directly and expressly raised, controverted and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J., resolved that issue in his Decision and held the "Don Carlos" to have been negligent rather than the "Yotai Maru" and, as already noted, that Decision was affirmed by this Court in G.R. No. L-48839 in a Resolution dated 6 December 1978. The Reyes Decision thus became final and executory approximately two (2) years before the Sison Decision, which is assailed in the case at bar, was promulgated. Applying the rule of conclusiveness of judgment, the question of which vessel had been negligent in the collision between the two (2) vessels, had long been settled by this Court and could no longer be relitigated in C.A.-G.R. No. 61206-R. Private respondent Go Thong was certainly bound by the ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of Appeals fell into clear and reversible error when it disregarded the Decision of this Court affirming the Reyes Decision. 10

Private respondent Go Thong also argues that a compromise agreement entered into between Sanyo Shipping Company as owner of the "Yotai Maru" and Go Thong as owner of the "Don Carlos," under which the former paid P268,000.00 to the latter effectively settled that the "Yotai Maru" had been at fault. This argument is wanting in both factual basis and legal substance. True it is that by virtue of the compromise agreement, the owner of the "Yotai Maru" paid a sum of money to the owner of the "Don Carlos." Nowhere, however, in the compromise agreement did the owner of the "Yotai Maru" admit or concede that the "Yotai Maru" had been at fault in the collision. The familiar rule is that "an offer of compromise is not an admission that anything is due, and is not admissible in evidence against the person making the offer." 11 A compromise is an agreement between two (2) or more persons who, in order to forestall or put an end to a law suit, adjust their differences by mutual consent, an adjustment which everyone of them prefers to the hope of gaining more, balanced by the danger of losing more. 12 An offer to compromise does not, in legal contemplation, involve an admission on the part of a defendant that he is legally liable, nor on the part of a plaintiff that his claim or demand is groundless or even doubtful, since the compromise is arrived at precisely with a view to avoiding further controversy and saving the expenses of litigation. 13 It is of the very nature of an offer of compromise that it is made tentatively, hypothetically and in contemplation of mutual concessions. 14 The above rule on compromises is anchored on public policy of the most insistent and basic kind; that the incidence of litigation should be reduced and its duration shortened to the maximum extent feasible.

The collision between the "Yotai Maru" and the "Don Carlos" spawned not only sets of litigations but also administrative proceedings before the Board of Marine Inquiry ("BMI"). The collision was the subject matter of an investigation by the BMI in BMI Case No. 228. On 12 July 1971, the BMI, through Commodore Leovegildo L. Gantioki, found both vessels to have been negligent in the collision.

Both parties moved for reconsideration of the BMI's decision. The Motions for Reconsideration were resolved by the Philippine Coast Guard ("PCG") nine (9) years later, in an order dated 19 May 1980 issued by PCG Commandant, Commodore Simeon M. Alejandro. The dispositive portion of the PCG decision read as follows:

"Premises considered, the Decision dated July 12, 1971 is hereby reconsidered and amended absolving the officers of YOTAI MARU' from responsibility for the collision. This

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Headquarters finds no reason to modify the penalties imposed upon the officers of 'Don Carlos'. (Annex 'C', Reply, September 5, 1981)." 15

Go Thong filed a second Motion for Reconsideration; this was denied by the PCG in an order dated September 1980.

Go Thong sought to appeal to the then Ministry of National Defense from the orders of the PCG by filing with the PCG on 6 January 1981 a motion for a 30-day extension from 7 January 1981 within which to submit its record on appeal. On 4 February 1981, Go Thong filed a second urgent motion for another extension of thirty (30) days from 7 February 1981. On 12 March 1981, Go Thong filed a motion for a final extension of time and filed its record on appeal on 17 March 1981. The PCG noted that Go Thong's record on appeal was filed late, that is, seven (7) days after the last extension granted by the PCG had expired. Nevertheless, on 1 July 1981 (after the Petition for Review on Certiorari in the case at bar had been filed with this Court), the Ministry of Defense rendered a decision reversing and setting aside the 19 May 1980 decision of the PCG.

The owners of the "Yotai Maru" then filed with the Office of the President a Motion for Reconsideration of the Defense Ministry's decision. The Office of the President rendered a decision dated 17 April 1986 denying the Motion for Reconsideration. The decision of the Office of the President correctly recognized that Go Thong had failed to appeal in a seasonable manner:

"MV 'DON CARLOS' filed her Notice of Appeal on January 5, 1981. However, the records also show beyond peradventure of doubt that the PCG Commandant's decision of May 19, 1980, had already become final and executory when MV 'DON CARLOS' filed her Record on Appeal on March 17, 1981, and when the motion for third extension was filed after the expiry date.

Under Paragraphs (c), (d), (e) and (f), Chapter XVI, of the Philippine Merchant Marine Rules and Regulations, decisions of the PCG Commandant shall be final unless, within thirty (30) days after receipt of a copy thereof, an appeal to the Minister of National Defense is filed and perfected by the filing of a notice of appeal and a record on appeal. Such administrative regulation has the force and effect of law, and the failure of MV 'DON CARLOS' to comply therewith rendered the PCG Commandant's decision on May 19, 1980, as final and executory, (Antique Sawmills, Inc. vs. Zayco, 17 SCRA 316; Deslata vs. Executive Secretary, 19 SCRA 487; Macailing vs. Andrada, 31 SCRA 126.) (Annex 'A', Go Thongs Manifestation and Motion for Early Resolution, November 24, 1986)."16 (Emphases supplied)

Nonetheless, acting under the misapprehension that certain "supervening" events had taken place, the Office of the President held that the Minister of National Defense could validly modify or alter the PCG Commandant's decision:

"However, the records likewise show that, on November 26, 1980, the Court of Appeals rendered a decision in CA-G.R. No. 61206-R (Smith Bell & Co., Inc., et al. vs. Carlos A. Go Thong & Co.) holding that the proximate cause of the collision between MV 'DON CARLOS' AND MS 'YOTAI MARU' was the negligence, failure and error of judgment of the officers of MS 'YOTAI MARU'. Earlier, or on February 27, 1976, the Court of First Instance of Cebu rendered a decision in Civil Case No. R-11973 (Carlos A. Go Thong vs. San-yo Marine Co.) holding that MS 'YOTAI MARU' was solely responsible for the collision, which decision was upheld by the Court of Appeals.

The foregoing judicial pronouncements rendered after the finality of the PCG Commandant's decision of May 19, 1980, were supervening causes or reasons that rendered the PCG Commandant's decision as no longer enforceable and entitled MV 'DON CARLOS' to request the Minister of National Defense to modify or alter the questioned decision to harmonize the same with justice and the facts. (De la Costa vs. Cleofas, 67 Phil.

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686; City of Bututan vs. Ortiz, 3 SCRA 659; Candelario vs. Canizarez, 4 SCRA 738; Abellana vs. Dosdos, 13 SCRA 244). Under such precise circumstances, the Minister of National Defense may validly modify or alter the PCG commandant's decision. (Sec. 37, Act 4007; Secs. 79(c) and 550, Revised Administrative Code; Province of Pangasinan vs. Secretary of Public Works and Communications, 30 SCRA 134; Estrella vs. Orendain, 37 SCRA 640)." 17 (Emphases supplied)

The multiple misapprehensions under which the Office of the President labored, were the following:

It took account of the Decision of Sison, P.V., J. in C.A.-G.R. No. 61206-R, the very decision that is the subject of review in the Petition at bar and therefore not final. At the same time, the Office of the President either ignored or was unaware of the Reyes, L.B., J., Decision in C.A.-G.R. No 61320-R finding the "Don Carlos" solely liable for the collision, and of the fact that that Decision had been affirmed by the Supreme Court and had long ago become final and executory. A third misapprehension of the Office of the President related to a decision in a Cebu Court of First Instance litigation which had been settled by the compromise agreement between the Sanyo Marine Company and Go Thong. The Office of the President mistakenly believed that the Cebu Court of First Instance had rendered a decision holding the "Yotai Maru" solely responsible for the collision, when in truth the Cebu court had rendered a judgment of dismissal on the basis of the compromise agreement. The Cebu decision was not, of course, appealed to the Court of Appeals. Cdpr

It thus appears that the decision of the Office of the President upholding the belated reversal by the Ministry of National Defense of the PCG'S decision holding the "Don Carlos" solely liable for the collision, is so deeply flawed as not to warrant any further examination. Upon the other hand, the basic decision of the PCG holding the "Don Carlos" solely negligent in the collision remains in effect.

II

In their Petition for Review, petitioners assail the finding and conclusion of the Sison Decision, that the "Yotai Maru" was negligent and at fault in the collision, rather than the "Don Carlos." In view of the conclusions reached in Part I above, it may not be strictly necessary to deal with the issue of the correctness of the Sison Decision in this respect. The Court considers, nonetheless, that in view of the conflicting conclusions reached by Reyes, L.B., J., on the one hand, and Sison, P.V., J.,on the other, and since in affirming the Reyes Decision, the Court did not engage in a detailed written examination of the question of which vessel had been negligent, and in view of the importance of the issues of admiralty law involved, the Court should undertake a careful review of the record of the case at bar and discuss those issues in extenso.

The decision of Judge Cuevas in Civil Case No. 82556 is marked by careful analysis of the evidence concerning the collision. It is worth underscoring that the findings of fact of Judge Fernandez in Civil Case No. 82567 (which was affirmed by the Court of Appeals in the Reyes Decision and by this Court in G.R. No. L-48839) are just about identical with the findings of Judge Cuevas. Examining the facts as found by Judge Cuevas, the Court believes that there are three (3) principal factors which are constitutive of negligence on the part of the "Don Carlos," which negligence was the proximate cause of the collision.

The first of these factors was the failure of the "Don Carlos" to comply with the requirements of Rule 18 (a) of the International Rules of the Road ("Rules"), 18 which provides as follows

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"(a)When two power-driven vessels are meeting end on, or nearly end on, so as to involve risk of collision, each shall alter her course to starboard, so that each may pass on the port side of the other. This Rule only applies to cases where vessels are meeting end on or nearly end on, in such a manner as to involve risk of collision, and does not apply to two vessels which must, if both keep on their respective course, pass clear of each other. The only cases to which it does apply are when each of two vessels is end on, or nearly end on, to the other; in other words, to cases in which, by day, each vessel sees the masts of the other in a line or nearly in a line with her own; and by night to cases in which each vessel is in such a position as to see both the sidelights of the other. It does not apply, by day, to cases in which a vessel sees another ahead crossing her own course; or, by night, to cases where the red light of one vessel is opposed to the red light of the other or where the green light of one vessel is opposed to the green light of the other or where a red light without a green light or a green light without a red light is seen ahead, or where both green and red lights are seen anywhere but ahead." (Emphasis supplied)

The evidence on this factor was summarized by Judge Cuevas in the following manner:

"Plaintiffs and defendant's evidence seem to agree that each vessel made a visual sighting of each other ten minutes before the collision which occurred at 0350. German's version of the incident that followed, was that 'Don Carlos' was proceeding directly to [a] meeting [on an] 'end-on or nearly end-on situation' (Exh. S, page 8). He also testified that 'Yotai Maru's' headlights were 'nearly in line at 0340 A.M.' (t.s.n, June 6, 1974) clearly indicating that both vessels were sailing on exactly opposite paths (t.s.n. June 6, 1974, page 56). Rule 18 (a) of the International Rules of the Road provides as follows:

xxx xxx xxx

And yet German altered 'Don Carlos' course by five degrees to the left at 0343 hours instead of to the right (t.s.n. June 6, 1974, pages 44-45) which maneuver was the error that caused the collision in question. Why German did so is likewise explained by the evidence on record. 'Don Carlos' was overtaking another vessel, the 'Don Francisco' and was then at the starboard (right side) of the aforesaid vessel at 3.40 a.m. It was in the process of overtaking 'Don Francisco' that 'Don Carlos' was finally brought into a situation where he was meeting end-on or nearly end -on 'Yotai Maru' thus involving risk of collision. Hence, German in his testimony before the Board of Marine Inquiry stated:

'Atty. Chung:

You said in answer to the cross-examination that you took a change of course to the left. Why did you not take a course to the right instead?

German:

I did not take any course to the right because the other vessel was in my mind at the starboard side following me. Besides, I don't want to get risk of the Caballo Island (Exh. 2, pages 209 and 210).'" 19 (Emphasis supplied).

For her part, the "Yotai Maru" did comply with its obligations under Rule 18 (a). As the "Yotai Maru" found herself on an "end-on" or a "nearly end-on" situation vis-a-vis the "Don Carlos," and as the distance between them was rapidly shrinking, the "Yotai Maru" turned starboard (to its right) and at the same time gave the required signal consisting of one short horn blast. The "Don Carlos" turned to portside (to its left), instead of turning to starboard as demanded by Rule 18 (a). The "Don Carlos" also violated Rule 28 (c) for it failed to give the required signal of two (2) short horn blasts meaning "I am altering my course to port." When the "Yotai Maru" saw that the "Don Carlos" was turning to port, the master of the "Yotai Maru" ordered the vessel turned "hard starboard" at 3:45 a.m. and stopped her engines; at about 3:46 a.m. the "Yotai Maru" went "full astern engine." 20 The collision occurred at exactly 3:50 a.m.

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The second circumstance constitutive of negligence on the part of the "Don Carlos" was its failure to have on board that night a "proper look-out" as required by Rule I (B). Under Rule 29 of the same set of Rules, all consequences arising from the failure of the "Don Carlos" to keep a "proper look-out" must be borne by the "Don Carlos." Judge Cuevas' summary of the evidence said:

"The evidence on record likewise discloses very convincingly that 'Don Carlos' did not have a 'look-out' whose sole and only duty is only to act as such . . ." 21

A "proper look-out" is one who has been trained as such and who is given no other duty save to act as a look-out and who is stationed where he can see and hear best and maintain good communication with the officer in charge of the vessel, and who must, of course, be vigilant. Judge Cuevas wrote:

"The 'look-out' should have no other duty to perform. (Chamberlain v. Ward, 21, N.O.W. 62, U.S. 548, 571). He has only one duty, that which its name implies — to keep a 'look-out'. So a deckhand who has other duties, is not a proper 'look-out' (Brooklyn Perry Co. v. U.S., 122, Fed. 696). The navigating officer is not a sufficient 'look-out' (Larcen B. Myrtle, 44 Fed. 779) — Griffin on Collision, pages 277-278). Neither the captain nor the [helmsman] in the pilothouse can be considered to be a 'look-out' within the meaning of the maritime law. Nor should he be stationed in the bridge. He should be as near as practicable to the surface of the water so as to be able to see low-lying lights (Griffin on Collision, page 273).

On the strength of the foregoing authorities, which do not appear to be disputed even by the defendant, it is hardly probable that neither German or Leo Enriquez may qualify as 'look-out' in the real sense of the word." 22 (Emphases supplied).

In the case at bar, the failure of the "Don Carlos" to recognize in a timely manner the risk of collision with the "Yotai Maru" coming in from the opposite direction, was at least in part due to the failure of the "Don Carlos" to maintain a proper look-out.

The third factor constitutive of negligence on the part of the "Don Carlos" relates to the fact that Second Mate Benito German was, immediately before and during the collision, in command of the "Don Carlos." Judge Cuevas summed up the evidence on this point in the following manner:

"The evidence on record clearly discloses that 'Don Carlos' was, at the time of the collision and immediately prior thereto, under the command of Benito German, a second mate although its captain, Captain Rivera, was very much in the said vessel at the time. The defendant's evidence appears bereft of any explanation as to why second mate German was at the helm of the aforesaid vessel when Captain Rivera did not appear to be under any disability at the time. In this connection, Article [633] of the Code of Commerce provides:

'Art. [633] — The second mate shall take command of the vessel in case of the inability or disqualification of the captain and sailing mate, assuming, in such case, their powers and liability.'

The fact that second mate German was allowed to be in command of 'Don Carlos' and not the chief or the sailing mate in the absence of Captain Rivera, gives rise to no other conclusion except that said vessel [had] no chief mate. Otherwise, the defense evidence should have at least explained why it was German, only a second mate, who was at the helm of the vessel 'Don Carlos' at the time of the fatal collision.

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But that is not all. Worst still aside from German's being only a second mate, is his apparent lack of sufficient knowledge of the basic and generally established rules of navigation. For instance he appeared unaware of the necessity of employing a 'look-out' (t.s.n. June 6, 1974, page 27) which is manifest even in his testimony before the Board of Marine Inquiry on the same subject (Exh. 2, page 209). There is, therefore, every reasonable ground to believe that his inability to grasp actual situation and the implication brought about by inadequacy of experience and technical know-how was mainly responsible and decidedly accounted for the collision of the vessels involved in this case . . ." 23 (Emphasis supplied)

Second Mate German simply did not have the level of experience, judgment and skill essential for recognizing and coping with the risk of collision as it presented itself that early morning when the "Don Carlos," running at maximum speed and having just overtaken the "Don Francisco" then approximately one mile behind to the starboard side of the "Don Carlos," found itself head-on or nearly head on vis-a-vis the "Yotai Maru." It is essential to point out that this situation was created by the "Don Carlos" itself.

The Court of Appeals in C.A.-G.R. No. 61206-R did not make any findings of fact which contradicted the findings of fact made by Judge Cuevas. What Sison, P.V., J.actually did was to disregard all the facts found by Judge Cuevas, and discussed above and, astonishingly, found a duty on the "Yotai Maru" alone to avoid collision with and to give way to the "Don Carlos." Sison, P.V., J., wrote:

"At a distance of eight (8) miles and with ten (10) minutes before the impact, [Katoh] and Chonabayashi had ample time to adopt effective precautionary measures to steer away from the Philippine vessel, particularly because both [Katoh] and Chonabayashi also deposed that at the time they had first eyesight of the 'Don Carlos' there was still 'no danger at all' of a collision. Having sighted the 'Don Carlos' at a comparatively safe distance — 'no danger at all' of a collision — the Japanese ship should have observed with the highest diligence the course and movements of the Philippine interisland vessel as to enable the former to adopt such precautions as will necessarily prevent a collision, or give way, and in case of a collision, the former is prima facie at fault. In G. Urrutia & Co. vs. Baco River Plantation Co., 26 Phil. 632, the Supreme Court held:

'Nautical rules require that where a steamship and sailing vessel are approaching each other from opposite directions, or on intersecting lines, the steamship, from the moment the sailing vessel is seen, shall watch with the highest diligence her course and movements so as to enable it to adopt such timely means of precaution as will necessarily prevent the two boats from coming in contact.' (Emphasis supplied)

At 3:44 p.m., or 4 minutes after first sighting the 'Don Carlos', or 6 minutes before contact time, Chonabayashi revealed that the 'Yotai Maru' gave a one-blast whistle to inform the Philippine vessel that the Japanese ship was turning to starboard or to the right and that there was no blast or a proper signal from the 'Don Carlos' (pp. 67-68. Deposition of Chonabayashi, List of Exhibits). The absence of a reply signal from the 'Don Carlos' placed the 'Yotai Maru' in a situation of doubt as to the course the Don Carlos' would take. Such being the case, it was the duty of the Japanese officers 'to stop, reverse or come to a standstill' until the course of the 'Don Carlos' has been determined and the risk of a collision removed (The Sabine, 21 F (2d) 121, 124, cited in Standard Vacuum, etc. vs. Cebu Stevedoring, etc., 5 C.A.R. 2d 853, 861-862) . . ." 24 (Emphasis supplied).

The Court is unable to agree with the view thus taken by Sison, P.V., J. By imposing an exclusive obligation upon one of the vessels, the "Yotai Maru," to avoid the collision, the Court of Appeals not only chose to overlook all the above facts constitutive of negligence on the part of the "Don Carlos;" it also in effect used the very negligence on the part of the "Don Carlos;" to absolve it from responsibility and to shift that responsibility exclusively onto the "Yotai Maru" the vessel

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which had observed carefully the mandate of Rule 18 (a). Moreover, G. Urrutia and Company v. Baco River Plantation Company 25 invoked by the Court of Appeals seems simply inappropriate and inapplicable. For the collision in the Urrutia case was between a sailing vessel, on the one hand, and a power-driven vessel, on the other; the Rules, of course, imposed a special duty on the power-driven vessel to watch the movements of a sailing vessel, the latter being necessarily much slower and much less maneuverable than the power-driven one. In the case at bar, both the "Don Carlos" and the "Yotai Maru" were power-driven and both were equipped with radar; the maximum speed of the "Yotai Maru" was thirteen (13) knots while that of the "Don Carlos" was eleven (11) knots. Moreover, as already noted, the "Yotai Maru" precisely took last minute measures to avert collision as it saw the "Don Carlos" turning to portside: the "Yotai Maru" turned "hard starboard" and stopped its engines and then put its engines "full astern."

Thus, the Court agrees with Judge Cuevas (just as it had agreed with Reyes, L.B., J.), with Judge Fernandez and Nocon, J., 26 that the "Don Carlos" had been negligent and that its negligence was the sole proximate cause of the collision and of the resulting damages.

FOR ALL THE FOREGOING, the Decision of the Court of Appeals dated 26 November 1980 in C.A.-G.R. No. 61206-R is hereby REVERSED and SET ASIDE. The decision of the trial court dated 22 September 1975 is hereby REINSTATED and AFFIRMED in its entirety. Costs against private respondent.

SO ORDERED.

Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Gancayco, Padilla, Bidin, Sarmiento, Griño-Aquino, Medialdea, Regalado and Davide, Jr., JJ.,concur.

[G.R. No. 1876. September 30, 1905.]

THE UNITED STATES, plaintiff-appellant, vs. SMITH BELL & COMPANY, defendant-appellee.

Solicitor-General Araneta, for appellant.

Pillsbury & Sutro, for appellee.

SYLLABUS

1.ADMIRALTY; ACTION FOR DAMAGES AS RESULT OF COLLISION. — An action for the recovery of loss and damages arising from the collision of boats engaged in traffic upon the waters of the Philippine Archipelago, can not be admitted if a sworn statement or declaration is not presented within twenty-four hours to competent authority of the point where the collision took place or of the first port of arrival of the vessel. (Art. 835, Commercial Code.) This statutory rules applies even though the injury was done to a boat operated by the Government.

D E C I S I O N

81

JOHNSON, J p:

This was an action by the plaintiff against the defendant, brought in the Court of First Instance of the city of Manila, to recover the sum of $1,600, United States currency, for damages occasioned to the Navy boat Barcelo on the 6th day of November, 1902, at about 11 o'clock, p.m., on the said day, near the mouth of the Pasig River, by a collision with a casco that was then and there being towed by the launch Alexandra. The launch Alexandra is the property of the defendant.

The inferior court found that the defendant had not complied with the rules of navigation in Manila Bay, in that it failed to display lights in accordance with such regulations, and that, by reason of such failure, the collision and consequent damages occurred. This findings of fact by the court below, there being no motion for a new trial, is conclusive.

The defendant, in the court below, claimed that the plaintiff could and recover in the action, for the reason that it had not complied with the provisions of the Code of Commerce, relying particularly upon article 835 of the same. Article 835 provides: "The action for the recovery of loss and damages arising from collisions can not be admitted if a sworn statement or declaration is not presented within twenty-four hours to competent authority of the point where the collision took place, or that of the first port of arrival of the vessel."

The plaintiff claimed that this provision of the Commercial Code did not apply to it. We are all of the opinion that the quoted provision of the Commercial Code applies to all persons engaged in traffic upon the waters of the Philippine Archipelago; that the defendant has as much right to insist upon compliance with this provision of the code where the damages were done to a boat operated by the Government as if such boat had been operated by a private individual or company. This provision of the Commercial Code, requiring protest to be made and presented to the proper authority within twenty-four hours after the collision, or after the arrival of the injured boat in port, is a prerequisite to the bringing of an action for damages. By having failed to comply with this provisions of the Commercial Code it can not maintain this action for damages.

It is therefore adjudged and ordered that the decision of the inferior court be affirmed, and that the defendant recover of the plaintiff his costs in this action, and at the expiration of twenty days judgment should be entered in accordance herewith, and the cause remanded to the court below for execution of said judgment. So ordered.

Arellano, C.J., Torres, Mapa and Carson, JJ., concur.

Willard, J., did not sit in this case.

[G.R. No. 20145. November 15, 1923.]

VICENTE VERZOSA and RUIZ, REMENTERIA CIA., S. in C., plaintiffs-appellants, vs. SILVINO LIM and SIY CONG BIENG & COMPANY, INC., defendants-appellants.

Ramon Sotelo for plaintiffs-appellants.

Gabriel La O for defendants-appellants.

SYLLABUS

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1.ADMIRALTY LAW; COLLISION; PROTEST. — A justice of the peace and, in his absence, an auxiliary justice of the peace are competent persons before whom to make protest of a marine collision.

2.ID.; ID.; ID.; PRESUMPTION AS TO AUTHORITY OF AUXILIARY JUSTICE OF PEACE TO TAKE PROTEST. — Where a protest of collision is made before an auxiliary justice of the peace, it will be presumed, in the absence of any proof to the contrary, that the justice of the peace was absent and that the auxiliary justice of the peace had authority to act.

3.NOTARY PUBLIC EX-OFFICIO; AUXILIARY JUSTICE OF PEACE. — An auxiliary justice of the peace is not ex-officio notary public.

4.ADMIRALTY LAW; COLLISION; DAMAGES; LIABILITY OF OWNER AND OPERATING COMPANY. — Where a collision occurs between two seagoing vessels, caused exclusively by the carelessness of the navigating officers in charge of one of the vessels, both the owner and the operating company (casa naviera) directly in charge of the offending vessel are liable for the damage done.

5.OBLIGATIONS; APPORTIONABILITY OF OBLIGATION; JOINT AND SEVERAL LIABILITY OF TORTFEASORS. — The rule that joint obligations are apportionable unless otherwise specially provided has no application to obligations arising from tort (ex delicto). Persons who cooperate in the tortious infliction of damage are jointly and severally liable.

D E C I S I O N

STREET, J p:

This action was instituted in the Court of First Instance of the City of Manila by Vicente Verzosa and Ruiz, Rementeria y Compania, as owners of the coastwise vessel Perla, against Silvino Lim and Siy Cong Bieng & Company, Inc., as owner and agent, respectively, of the vessel Ban Yek, for the purpose of recovering a sum of money alleged to be the damages resulting to the plaintiffs from a collision which occurred on March 9, 1921, between the two vessels mentioned, it being alleged that said collision was due to the inexperience, carelessness and lack of skill on the part of the captain of the Ban Yek and to his failure to observe the rules of navigation appropriate to the case. The defendants answered with a general denial, and by way of special defense asserted, among other things. that the collision was due exclusively to the inexperience and carelessness of the captain and officers of the steamship Perla; for which reason the defendants in turn, by way of counterclaim, prayed judgment for the damages suffered by the Ban Yek from the same collision. At the hearing the trial judge absolved the defendants from the complaint and likewise absolved the plaintiffs from the defendants' counterclaim. From this judgment both parties appealed.

It appears in evidence that at about five o'clock in the afternoon of March 9, 1921, the coastwise steamer Ban Yek left the port of Naga on the Bicol River, in the Province of Camarines Sur, with destination to the City of Manila. At the time of her departure from said port the sea was approaching to high tide but the current was still running in through the Bicol River, with the result that the Ban Yek had the current against her. As the ship approached the Malbong bend of the Bicol River, in the Municipality of Gainza, another vessel, the Perla, was sighted coming up the river on the way to Naga. While the boats were yet more than a kilometer apart, the Ban Yek gave two blasts with her whistle, thus indicating an intention to pass on the left, or to her own port side. In reply to this signal thePerla gave a single blast, thereby indicating that she disagreed with the signal given by the Ban Yek and would maintain her position on the right, that is, would keep to the starboard. The Ban Yek made no reply to this signal. As the Perla was navigating with the current, then running in

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from the sea, this vessel, under paragraph 163 of Customs Marine Circular No. 53, had the right of way over the Ban Yek, and the officers of the Perla interpreted the action of the Ban Yek in not replying to the Perla's signal as an indication of acquiescence of the officers of the Ban Yek in the determination of the Perla to keep to the starboard.

The river at this point is about two hundred and fifty feet wide, and the courses thus being respectively pursued by the two vessels necessarily tended to bring them into a head-on collision. When the danger of such an occurrence became imminent, Captain Garrido of the Perla, seeing that he was shut off by the BanYek from passing to the right, put his vessel to port, intending to avoid collision or minimize its impact by getting farther out into the stream. An additional reason for this maneuver, as stated by Captain Garrido, is that the captain of the Ban Yek waived his hand to Garrido, indicating that the latter should turn his vessel towards the middle of the stream. At about the same time that the Perla was thus deflected from her course the engine on the Ban Yek was reversed and three blasts were given by this vessel to indicate that she was backing.

Now, it appears that when the engine is reversed, a vessel swings to the right or left in accordance with the direction in which the blades of the propeller are set; and as the Ban Yek began to back, her bow was thrown out into the stream, a movement which was assisted by the current of the river. By this means the Ban Yek was brought to occupy an oblique position across the stream at the moment the Perla was passing; and the bow of the Ban Yek crashed into the starboard bumpers of the Perla, carrying away external parts of the ship and inflicting material damage on the hull. To effect the repairs thus made necessary to the Perla cost her owners the sum of P17,827, including expenses of survey.

The first legal point presented in the case has reference to the sufficiency of the protest. In this connection it appears that within twenty-four hours after the arrival of the Perla at the port of Naga, Captain Garrido appeared before Vicente Rodi, the auxiliary justice of the peace of the municipality of Naga, and made before that officer the sworn protest which is in evidence as Exhibit B. This protest is sufficient in our opinion to answer all the requirements of article 835 of the Code of Commerce. A regular justice of the peace would without doubt be competent to take a marine protest, and the same authority must be conceded to the auxiliary justice in the absence of any showing in the record to the effect that the justice of the peace himself was acting at the time in the municipality (Adm. Code, sec. 211; sec. 334, Code of Civ. Proc., subsecs. 14, 15). We note that in his certificate to this protest Vicente Rode added to the appellation of auxiliary justice of the peace, following his mane, the additional designation "notary public ex-officio." However, under subsection (c) of section 242 of the Administrative Code, it is plain that an auxiliary justice of the peace is not an ex-officio notary public. It results that the taking of this protest must be ascribed to the officer in his character as auxiliary justice of the peace and not in the character of notary public ex-officio It is hardly necessary to add that this court takes judicial notice of the fact that Naga is not a port of entry and that no customs official of rank is there stationed who could have taken cognizance of this protest.

Upon the point of responsibility for the collision we have no hesitancy in finding that the fault is to be attributed exclusively to the negligence and inattention of the captain and pilot in charge of the Ban Yek. The Perla undoubtedly had the right of way, since this vessel was navigating with the current, and the officers in charge of the Perla were correct in assuming, from the failure of the Ban Yek to respond to the single blast of the Perla, that the officers in charge of the Ban Yekrecognized that the Perla had a right of way and acquiesced in her resolution to keep to the right. The excuse urged for the Ban Yek is that this vessel is somewhat larger than the Perla and that it was desirable for the Ban Yek to keep on the side of the long are of the curve of the river; and in this connection it is suggested that the river is deeper on the outer edge of the bend that on the inner edge. It is also stated that on a certain previous occasion the Ban Yek on coming out from this port had gotten stuck in the mud in this bend by dipping too far to the right. Moreover, it is said to be the practice of ships in navigating this stream to keep nearer the outside than to the inside of the bend. These

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suggestions are by no means convincing. It appears in evidence that the river bottom here is composed of mud and silt, and as the tide at the time of this incident was nearly at its flood, there was ample depth of water to have accommodated the Ban Yek of she had kept to that part of the stream which it was proper for her to occupy. We may further observe that the disparity in the size of the vessels was not such as to dominate the situation and deprive the Perla of the right of way under the conditions stated. Blame for the collision must therefore, as already stated, be attributed to the Ban Yek.

On the other hand no fault can be attributed to the officers navigating the Perla either in maintaining the course which had been determined upon for that vessel in conformity with the marine regulations applicable to the case or in deflecting the vessel towards the middle of the stream after the danger of collision became imminent. The trial judge suggests in his opinion that when Captain Garrido saw that the Ban Yek was holding her course to the left he (Garrido) should have changed the course of the Perla to port more promptly. The validity of this criticism cannot be admitted. Among rules applicable to navigation none is better founded on reason and experience than that which requires the navigating officers of any vessel to assume that an approaching vessel will observe the regulations prescribed for navigation (G. Urrutia & Co. vs. Baco River Plantation Co., 26 Phil., 632, 637). Any other rule would introduce guess work into the control of ships and produce uncertainty in the operation of the regulations.

Our conclusion is that his Honor, the trial judge, was in error in not awarding damages to the Perla; but no error we committed in absolving the plaintiffs from the defendants' cross-complaint.

The sum of P17,827 in our opinion represents the limit of the plaintiffs' right of recovery. On the original complaint recovery is sought for an additional amount of P18,000, most of which consists of damages supposed to have been incurred from the inability of the Perla to maintain her regular schedule while laid up in the dock undergoing repairs. The damages thus claimed, in addition to being somewhat of a speculative nature, are in our opinion not sufficiently proved to warrant the court in allowing the same.

Having determined the amount which the plaintiffs are entitled to recover, it becomes necessary to consider the person, or persons, who must respond for these damages. Upon this point we note that Silvino Lim is impleaded as owner; and Siy Cong Bieng & Co. is impleaded as the shipping agent (casa naviera), or person in responsible control of the Ban Yek at the time of the accident. We note further that in article 826 of the Code of Commerce it is declared that the ownerof any vessel shall be liable for the indemnity due to any other vessel injured by the fault, negligence, or lack of skill of the captain of the first. We say "owner," which is the word used in the current translation of this article in the Spanish Code of Commerce. It is to be observed, however, that the Spanish text itself uses the word naviero; and there is some ambiguity in the use of said word in this article, owing to the fact that naviero in Spanish has several meanings. The author of the article which appears under the word naviero in the Enciclopedia Juridica Española tells us that in Spanish it may mean either owner, outfitter, charterer, or agent, though he says that the fundamental and correct meaning of the word is that of "owner." That naviero, as used in the Spanish text of article 826, means owner is further to be inferred from article 837, which limits the civil liability expressed in article 826 to the value of the vessel with all her appurtenances and all the freight earned during the voyage. There would have been no propriety in limiting liability to the value of the vessel unless the owner were understood to be the person liable. It is therefore clear that by special provision of the Code of Commerce the owner is made responsible for the damage caused by an accident of the kind under consideration in this case; and in more than one case this court has held the owner liable, when sued alone (Philippine Shipping Co. vs. Garcia Vegara, 6 Phil., 281; G. Urrutia & Co. vs. Baco river Plantation Co., 26 Phil., 632).

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But while it is thus demonstrated that Silvino Lim is liable for these damages in the character of owner, it does not necessarily follow that Siy Cong Bieng & Co., as charterer or agent (casa naviera), is exempt from liability; and we are of the opinion that both the owner and agent can be held responsible where both are impleaded together. In Philippine Shipping Co. vs. Garcia Vergara (6 Phil., 281), it seems to have been accepted as a matter of course that both owner and agent of the offending vessel are liable for the damage done; and this must, we think, be true. The liability of the naviero, in the sense of charterer or agent, if not expressed in article 826 of the Code of Commerce, is clearly deducible from the general doctrine of jurisprudence stated in article 1902 of the Civil Code, and it is also recognized, but more especially as regards contractual obligations, in article 586 of the Code of Commerce. Moreover, we are of the opinion that both the owner and agent (naviero) should be declared to be jointly and severally liable, since the obligation which is the subject of this action had its origin in a tortious act and did not arise from contract. Article 1137 of the Civil Code, declaring that joint obligations shall be apportionable unless otherwise provided, has no application to obligations arising from tort.

For the reasons stated the judgment appealed from will be affirmed in so far as it absolves the plaintiffs' complaint; and judgment will be entered for the plaintiffs to recover jointly and severally from the defendants Silvino Lim and Siy Cong Bieng & Co. the sum of seventeen thousand eight hundred and twenty-seven pesos (17,827), with interest from the date of the institution of the action, without special pronouncement as to costs of either instance. So ordered.

Johonson, Malcolm, Avanceña, Villamor, and Romualdez, JJ., concur.

Separate Opinions

JOHNS, J., concurring and dissenting:

I concur in all of that portion of the majority opinion which holds that the defendant Silvino Lim, as owner, is liable for the damages in question, and I dissent from all of that portion of the opinion which holds that the defendant Siy Cong Bieng & Company, Inc., as charterer, is liable.

Under the pleadings here, the owner of the vessel only is liable.

[G.R. No. 8325. March 10, 1914.]

C. B. WILLIAMS, plaintiff-appellant, vs. TEODORO R. YANGCO, defendant-appellant.

William A. Kincaid and Thomas L. Hartigan for plaintiff.

Haussermann, Cohn & Fisher for defendant.

SYLLABUS

1.COLLISION DUE TO NEGLIGENCE; LIABILITY OF OWNERS. — The steamer Subic collided with the launch Euclid in the Bay of Manila, as a result of which the Euclid went to the bottom. The findings of record disclosed that the officers on both boats were negligent in the performance of their duties at the time of the accident, and that both

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vessels were to blame for the disaster. Held, That the owner of the launch Euclid has no cause of action against the owner of the steamer Subic.

2.ID.; ID.; DAMAGES. — The rule of liability for damages resulting from maritime collisions in this jurisdiction is to be found in the provisions of section 3, title 4, book III of the Code of Commerce, article 827 of which is as follows: "If both vessels may be blamed for the collision, each one shall be liable for its own damages, and both shall be jointly responsible for the loss and damage, suffered by their cargoes."

3.ID.; ID.; ID. — Without deciding whether in any case the doctrine of "the last clear chance" should be recognized in this jurisdiction: Held, That upon the facts disclosed by the record in this case, defendant could not be held liable for the loss of the Euclid, under the well-recognized rules limiting the application of that doctrine in cases of collisions at sea.

D E C I S I O N

CARSON, J p:

The steamer Subic, owned by the defendant, collided with the launch Euclid owned by the plaintiff, in the Bay of Manila at an early hour on the morning of January 9, 1911, and the Euclid sank five minutes thereafter. This action was brought to recover the value of the Euclid.

The court below held from the evidence submitted that the Euclid was worth at a fair valuation P10,000; that both vessels were responsible for the collision; and that the loss should be divided equally between the respective owners, P5,000 to be paid to the plaintiff by the defendant, and P5,000 to be borne by the plaintiff himself. From this judgment both defendant and plaintiff appealed.

After a careful review of all the evidence of record we are all agreed with the trial judge in his holding that the responsible officers on both vessels were negligent in the performance of their duties at the time when the accident occurred, and that both vessels were to blame for the collision. We do not deem it necessary to review the conflicting testimony of the witnesses called by both parties, the trial judge having inserted in his opinion a careful and critical summary and analysis of the testimony submitted to him, which, to our minds, fully and satisfactorily disposes of the facts in the case. His conclusions of fact based upon all the evidence are set forth in the following language (translated):

"In view of the negligence of which the patron Millionario (of defendant's vessel) has been guilty as well as that imputable to the patron of the launchEuclid, both contributed in a decided manner and beyond all doubt to the occurrence of the accident and the consequent damage resulting therefrom in the loss of the launch Euclid.

"With a little diligence which either of the two patrons might have practiced under the circumstances existing at the time of the collision, if both had not been so distracted and so negligent in the fulfillment of their respective duties, the disaster could have been easily avoided, since the sea was free of obstacles and the night one which permitted the patron Millionario to distinguish the hull of the launch twenty minutes before the latter entered upon his path . . .

"There is proven, therefore, the negligence of which the patron of the Euclid has been guilty.

"If the negligence by which the patron of the launch Euclid has contributed to the cause of the accident and to the resulting damages is patent, none the less so is the negligence of the patron of the steamer Subic, Hilarion Millionario by name, as may be seen from his own testimony which is here copied for the better appreciation thereof."

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It will be seen that the trial judge was of opinion that the vessels were jointly responsible for the collision and should be held jointly liable for the loss resulting from the sinking of the launch. But actions for damages resulting from maritime collisions are governed in this jurisdiction by the provisions of section 3, title 4, Book III of the Code of Commerce, and among these provisions we find the following:

"ART. 827.If both vessels may be blamed for the collision, each one shall be liable for its own damages, and both shall be jointly responsible for the loss and damage suffered by their cargoes."

In disposing of this case the trial judge apparently had in mind that portion of the section which treats of the joint liability of both vessels for loss or damage suffered by their cargoes. In the case at bar, however, the only loss incurred was that of the launch Euclid itself, which went to the bottom soon after the collision. Manifestly, under the plain terms of the statute, since the evidence of record clearly discloses, as found by the trial judge, that "both vessels may be blamed for the collision," each one must be held liable for its own damages, and the owner of neither one can recover from the other in an action for damages to his vessel.

Counsel for the plaintiff, basing his contentions upon the theory of the facts as contended for by him, insists that under the doctrine of "the last clear chance," the defendant should be held liable because, as he insists, even if the officers on board the plaintiff's launch were negligent in failing to exhibit proper lights and in failing to take the proper steps to keep out of the path of the defendant's vessel, nevertheless the officers on defendant's vessel, by the exercise of due precautions might have avoided the collision by a very simple maneuver. But it is sufficient answer to this contention to point out that the rule of liability in this jurisdiction for maritime accidents such as that now under consideration is clearly, definitely, and unequivocally laid down in the above-cited article 827 of the Code of Commerce; and under the rule, the evidence disclosing that both vessels were blameworthy, the owners of neither can successfully maintain an action against the other for the loss or injury of his vessel.

In cases of a disaster arising from mutual negligence of two parties, the party who has a last clear opportunity of avoiding the accident, notwithstanding the negligence of his opponent, is considered wholly responsible for it under the common-law rule of liability as applied in the courts of common law in the United States. But this rule (which is not recognized in the courts of admiralty in the United States, wherein the loss is divided in cases of mutual and concurring negligence, as also where the error of one vessel has exposed her to danger of collision which was consummated by the negligence of the other), is limited in its application by the further rule, that where the previous act of negligence of one vessel has created a position of danger, the other vessel is not necessarily liable for the mere failure to recognize the perilous situation; and it is only when in fact it does discover it in time to avoid the casualty by the use of ordinary care, that it becomes liable for the failure to make use of this last clear opportunity to avoid the accident. (See cases cited in Notes, 7 Cyc., pp. 311, 312, 313.) So, under the English rule which conforms very nearly to the common-law rule as applied in the American courts, it has been held that the fault of the first vessel in failing to exhibit proper lights or to take the proper side of the channel will relieve from liability one who negligently runs into such vessel before he sees it; although it will not be a defense to one who, having timely warning of the danger of collision, fails to use proper care to avoid it. (Pollock on Torts, 374.) In the case at bar, the most that can be said in support of plaintiff's contention is that there was negligence on the part of the officers on defendant's vessel in failing to recognize the perilous situation created by the negligence of those in charge of plaintiff's launch, and that had they recognized it in time, they might have avoided the accident. But since it does not appear from the evidence that they did, in fact, discover the perilous situation of the launch in time to avoid the accident by the exercise of ordinary care, it is very clear that under the above set out limitation to the rule, the plaintiff cannot escape the legal consequences of the contributory negligence of his launch, even were we to hold

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that the doctrine is applicable in this jurisdiction, upon which point we expressly reserve our decision at this time.

The judgment of the court below in favor of the plaintiff and against the defendant should be reversed, and the plaintiff's complaint should be dismissed without day, without costs to either party in this instance. So ordered.

Arellano, C. J., Moreland, Trent and Araullo, JJ., concur.

[G.R. No. 116940. June 11, 1997.]

THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner, vs. COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.

SYLLABUS

1.COMMERCIAL LAW; MARINE INSURANCE; VESSELS' PROXIMATE CAUSE OF SINKING WAS ITS BEING TOP-HEAVY. — The proximate cause of the sinking of "MV Asilda" was its being top-heavy. Evidence shows that approximately 2,500 cases of softdrink bottles were stowed on deck. Several days after "MV Asilda" sank, an estimated 2,500 empty Coca-Cola plastic cases were recovered near the vicinity of the sinking. Considering that the ship's hatches were properly secured, the empty Coca-Cola cases recovered could have come only from the vessel's deck cargo. It is settled that carrying a deck cargo raises the presumption of unseaworthiness unless it can be shown that the deck cargo will not interfere with the proper management of the ship. However, in this case it was established that "MV Asilda" was not designed to carry substantial amount of cargo on deck. The inordinate loading of cargo deck resulted in the decrease of the vessel's metacentric height thus making it unstable. The strong winds and waves encountered by the vessel are but the ordinary vicissitudes of a sea voyage and as such merely contributed to its already unstable and unseaworthy condition. DEICTS

2.ID.; CODE OF COMMERCE; ART. 587 ON ABANDONMENT OF VESSEL; NOT APPLICABLE WHERE SHIP AGENT IS ALSO LIABLE FOR THE NEGLIGENT ACTS OF THE CAPTAIN IN THE CARE OF GOODS. — Art. 587, of the Code of Commerce is not applicable to the case at bar. The ship agent is liable for the negligent acts of the captain in the care of goods loaded on the vessel. This liability however can be limited through abandonment of the vessel, its equipment and freightage as provided in Art. 587. Nonetheless, there are exceptional circumstances wherein the ship agent could still be held answerable despite the abandonment, as where the loss or injury was due to the fault of the shipowner and the captain. The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a shipowner's liability, does not apply to cases where the injury or average was occasioned by the shipowner's own fault. It must be stressed at this point that Art. 587 speaks only of situations where the fault or negligence is committed solely by the captain. Where the shipowner is likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the provisions of the Civil Code on common carrier.

3.CIVIL LAW; COMMON CARRIERS; REQUIRED DILIGENCE; PRESUMPTION IN CASE OF LOSS. — Under Art. 1733 of the Civil Code, "(c)ommon carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case . . . ." In the event of loss of goods, common carriers are presumed to have acted negligently. FELMAN, the shipowner, was not able to rebut this presumption.

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4.COMMERCIAL LAW; MARINE INSURANCE; ASSURED IMPLIEDLY WARRANTS VESSEL SEAWORTHINESS. — It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that the vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the policy. Thus Sec. 113 of the Insurance Code provides that "(i)n every marine insurance upon a ship or freight, or freightage, or upon anything which is the subject of marine insurance, a warranty is implied that the ship is seaworthy." Under Sec. 114, a ship is "seaworthy when reasonably fit to perform the service, and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy." Thus it becomes the obligation of the cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. He may have no control over the vessel but he has full control in the selection of the common carrier that will transport his goods. He also has full discretion in the choice of assurer that will underwrite a particular venture. cCAaHD

5.ID.; ID.; ID.; CAN BE EXCLUDED IN POLICY IN CLEAR LANGUAGE; CASE AT BAR. — In policies where the law will generally imply a warranty of seaworthiness, it can only be excluded by terms in writing in the policy in the clearest language. And where the policy stipulates that the seaworthiness of the vessel as between the assured and the assurer is admitted, the question of seaworthiness cannot be raised by the assurer without showing concealment or misrepresentation by the assurer without showing concealment or misrepresentation by the assured. The marine policy issued by PHILAMGEM to the Coca-Cola bottling firm in at least two (2) instances has dispensed with the usual warranty of worthiness. The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things: (a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the insurance company. The insertion of such waiver clauses in cargo policies is in recognition of the realistic fact that cargo owners cannot control the state of the vessel. Thus it can be said that with such categorical waiver, PHILAMGEN has accepted the risk of unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this case, PHILAMGEN is liable.

6.CIVIL LAW; SUBROGATION IN INSURANCE; CASE AT BAR. — PHILAMGEN'S action against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code. InPan Malayan Insurance Corporation v. Court of Appeals, we said that payment by the assurer to the assured operates as an equitable assignment to the assurer of all the remedies which the assured may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of contract or upon payment by the insurance company of the insurance claim. It accrues simply upon payment by the insurance company of the insurance claim. It accrues simply upon payment by the insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay. Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the right to bring an action as subrogee against FELMAN. Having failed to rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable. SDcITH

D E C I S I O N

BELLOSILLO, J p:

This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to observe the extraordinary diligence required by Art. 1733 of the Civil Code as well as the right of the insurer to be subrogated to the rights of the insured upon payment of the insurance claim.

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On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned and operated by respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink bottles to be transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu. 1 The shipment was insured with petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN for brevity), under Marine Open Policy No. 100367-PAG.

"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening of the same day. At around eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of Zamboanga del Norte bringing down her entire cargo with her including the subject 7,500 cases of 1-liter Coca-Cola softdrink bottles.

On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent FELMAN for recovery of damages it sustained as a result of the loss of its softdrink bottles that sank with "MV Asilda." Respondent denied the claim thus prompting the consignee to file an insurance claim with PHILAMGEN which paid its claim of P755,250.00.

Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which disclaimed any liability for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the shipowner for sum of money and damages.

In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its cargo were due to the vessel's unseaworthiness as she was put to sea in an unstable condition. It further alleged that the vessel was improperly manned and that its officers were grossly negligent in failing to take appropriate measures to proceed to a nearby port or beach after the vessel started to list.

On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no right of subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had abandoned all its rights, interests and ownership over "MV Asilda" together with her freight and appurtenances for the purpose of limiting and extinguishing its liability under Art. 587 of the Code of Commerce. 2

On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court of Appeals set aside the dismissal and remanded the case to the lower court for trial on the merits. FELMAN filed a petition for certiorari with this Court but it was subsequently denied on 13 February 1989.

On 28 February 1992 the trial court rendered judgment in favor of FELMAN. 3 It ruled that "MV Asilda" was seaworthy when it left the port of Zamboanga as confirmed by certificates issued by the Philippine Coast Guard and the shipowner's surveyor attesting to its seaworthiness. Thus the loss of the vessel and its entire shipment could only be attributed to either a fortuitous event, in which case, no liability should attach unless there was a stipulation to the contrary, or to the negligence of the captain and his crew, in which case, Art. 587 of the Code of Commerce should apply.

The lower court further ruled that assuming "MV Asilda" was unseaworthy, still PHILAMGEN could not recover from FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its implied warranty on the vessel's seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured was an undue, wrong and mistaken payment. Since it was not legally

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owing, it did not give PHILAMGEN the right of subrogation so as to permit it to bring an action in court as a subrogee.

On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994 respondent appellate court rendered judgment finding "MV Asilda" unseaworthy for being top-heavy as 2,500 cases of Coca-Cola softdrink bottles were improperly stowed on deck. In other words, while the vessel possessed the necessary Coast Guard certification indicating its seaworthiness with respect to the structure of the ship itself, it was not seaworthy with respect to the cargo. Nonetheless, the appellate court denied the claim of PHILAMGEN on the ground that the assured's implied warranty of seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not properly subrogated to the rights and interests of the shipper. Furthermore, respondent court held that the filing of notice of abandonment had absolved the shipowner/agent from liability under the limited liability rule.

The issues for resolution in this petition are: (a) whether "MV Asilda" was seaworthy when it left the port of Zamboanga; (b) whether the limited liability under Art. 587 of the Code of Commerce should apply; and, (c) whether PHILAMGEN was properly subrogated to the rights and legal actions which the shipper had against FELMAN, the shipowner.

"MV Asilda" was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain as well as the chief mate of the vessel confirmed that the weather was fine when they left the port of Zamboanga. According to them, the vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty CO2 cylinders and an undetermined quantity of empty boxes for fresh eggs. They loaded the empty boxes for eggs and about 500 cases of Coca-Cola bottles on deck. 4 The ship captain stated that around four o'clock in the morning of 7 July 1983 he was awakened by the officer on duty to inform him that the vessel had hit a floating log. At that time he noticed that the weather had deteriorated with strong southeast winds inducing big waves. After thirty minutes he observed that the vessel was listing slightly to starboard and would not correct itself despite the heavy rolling and pitching. He then ordered his crew to shift the cargo from starboard to portside until the vessel was balanced. At about seven o'clock in the morning, the master of the vessel stopped the engine because the vessel was listing dangerously to portside. He ordered his crew to shift the cargo back to starboard. The shifting of cargo took about an hour afterwhich he rang the engine room to resume full speed.

At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide on his next move, some of the cargo on deck were thrown overboard and seawater entered the engine room and cargo holds of the vessel. At that instance, the master of the vessel ordered his crew to abandon ship. Shortly thereafter, "MV Asilda" capsized and sank. He ascribed the sinking to the entry of seawater through a hole in the hull caused by the vessel's collision with a partially submerged log. 5

The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda." The report, which was adopted by the Court of Appeals, reads —

We found in the course of our investigation that a reasonable explanation for the series of lists experienced by the vessel that eventually led to her capsizing and sinking, was that the vessel was top-heavy which is to say that while the vessel may not have been overloaded, yet the distribution or stowage of the cargo on board was done in such a manner that the vessel was in top-heavy condition at the time of her departure and which condition rendered her unstable and unseaworthy for that particular voyage.

In this connection, we wish to call attention to the fact that this vessel was designed as a fishing vessel . . . and it was not designed to carry a substantial amount or quantity of

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cargo on deck. Therefore, we believe strongly that had her cargo been confined to those that could have been accommodated under deck, her stability would not have been affected and the vessel would not have been in any danger of capsizing, even given the prevailing weather conditions at that time of sinking.

But from the moment that the vessel was utilized to load heavy cargo on its deck, the vessel was rendered unseaworthy for the purpose of carrying the type of cargo because the weight of the deck cargo so decreased the vessel's metacentric height as to cause it to become unstable.

Finally, with regard to the allegation that the vessel encountered big waves, it must be pointed out that ships are precisely designed to be able to navigate safely even during heavy weather and frequently we hear of ships safely and successfully weathering encounters with typhoons and although they may sustain some amount of damage, the sinking of ship during heavy weather is not a frequent occurrence and is not likely to occur unless they are inherently unstable and unseaworthy . . .

We believe, therefore, and so hold that the proximate cause of the sinking of the M/V "Asilda" was her condition of unseaworthiness arising from her having been top-heavy when she departed from the Port of Zamboanga. Her having capsized and eventually sunk was bound to happen and was therefore in the category of an inevitable occurrence (emphasis supplied). 6

We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate cause of the sinking of "MV Asilda" was its being top-heavy. Contrary to the ship captain's allegations, evidence shows that approximately 2,500 cases of softdrink bottles were stowed on deck. Several days after "MV Asilda" sank, an estimated 2,500 empty Coca-Cola plastic cases were recovered near the vicinity of the sinking. Considering that the ship's hatches were properly secured, the empty Coca-Cola cases recovered could have come only from the vessel's deck cargo. It is settled that carrying a deck cargo raises the presumption of unseaworthiness unless it can be shown that the deck cargo will not interfere with the proper management of the ship. However, in this case it was established that "MV Asilda" was not designed to carry substantial amount of cargo on deck. The inordinate loading of cargo deck resulted in the decrease of the vessel's metacentric height 7 thus making it unstable. The strong winds and waves encountered by the vessel are but the ordinary vicissitudes of a sea voyage and as such merely contributed to its already unstable and unseaworthy condition.

On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar. 8 Simply put, the ship agent is liable for the negligent acts of the captain in the care of goods loaded on the vessel. This liability however can be limited through abandonment of the vessel, its equipment and freightage as provided in Art. 587. Nonetheless, there are exceptional circumstances wherein the ship agent could still be held answerable despite the abandonment, as where the loss or injury was due to the fault of the shipowner and the captain. 9 The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a shipowner's liability, does not apply to cases where the injury or average was occasioned by the shipowner's own fault. 10 It must be stressed at this point that Art. 587 speaks only of situations where the fault or negligence is committed solely by the captain. Where the shipowner is likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the provisions of the Civil Code on common carrier. 11

It was already established at the outset that the sinking of "MV Asilda" was due to its unseaworthiness even at the time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on deck. Closer supervision on the part of the shipowner could have prevented this fatal miscalculation. As such, FELMAN was equally

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negligent. It cannot therefore escape liability through the expedient of filing a notice of abandonment of the vessel by virtue of Art. 587 of the Code of Commerce.

Under Art. 1733 of the Civil Code, "(c)ommon carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case . . ." In the event of loss of goods, common carriers are presumed to have acted negligently. FELMAN, the shipowner, was not able to rebut this presumption.

In relation to the question of subrogation, respondent appellate court found "MV Asilda" unseaworthy with reference to the cargo and therefore ruled that there was breach of warranty of seaworthiness that rendered the assured not entitled to the payment of his claim under the policy. Hence, when PHILAMGEN paid the claim of the bottling firm there was in effect a "voluntary payment" and no right of subrogation accrued in its favor. In other words, when PHILAMGEN paid it did so at its own risk.

It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that the vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the policy. 12 Thus Sec. 113 of the Insurance Code provides that "(i)n every marine insurance upon a ship or freight, or freightage, or upon anything which is the subject of marine insurance, a warranty is implied that the ship is seaworthy." Under Sec. 114, a ship is "seaworthy when reasonably fit to perform the service, and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy." Thus it becomes the obligation of the cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. He may have no control over the vessel but he has full control in the selection of the common carrier that will transport his goods. He also has full discretion in the choice of assurer that will underwrite a particular venture.

We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly pointed out by FELMAN to stress that subrogation will not work in this case. In policies where the law will generally imply a warranty of seaworthiness, it can only be excluded by terms in writing in the policy in the clearest language. 13 And where the policy stipulates that the seaworthiness of the vessel as between the assured and the assurer is admitted, the question of seaworthiness cannot be raised by the assurer without showing concealment or misrepresentation by the assured. 14

The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances has dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No. 100367-PAG reads "(t)he liberties as per Contract of Affreightment the presence of the Negligence Clause and/or Latent Defect Clause in the Bill of Lading and/or Charter Party and/or Contract of Affreightment as between the Assured and the Company shall not prejudice the insurance. The seaworthiness of the vessel as between the Assured and the Assurers is hereby admitted." 15

The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states "(t)he seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted . . ." 16

The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things: (a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the insurance company. 17 The insertion of such waiver clauses

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in cargo policies is in recognition of the realistic fact that cargo owners cannot control the state of the vessel. Thus it can be said that with such categorical waiver, PHILAMGEN has accepted the risk of unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this case, PHILAMGEN is liable.

Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGEN's action against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides:

Art. 2207.If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

In Pan Malayan Insurance Corporation v. Court of Appeals, 18 we said that payment by the assurer to the assured operates as an equitable assignment to the assurer of all the remedies which the assured may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of contract or upon payment by the insurance company of the insurance claim. It accrues simply upon payment by the insurance company of the insurance claim. LexLib

The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay. 19 Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the right to bring an action as subrogee against FELMAN. Having failed to rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable.

WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five Thousand Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29 November 1983, the date of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil Code. 20

SO ORDERED.

Vitug, Kapunan and Hermosisima, Jr., JJ ., concur.

Padilla, J ., is on leave.

[G.R. No. L-2372. August 26, 1949.]

INTERNATIONAL HARVESTER COMPANY OF THE PHILIPPINES, petitioner-appellee, vs. CRISANTO ARAGON, Judge of Municipal Court of Manila, and YARAS & COMPANY, FAR EAST, respondents-appellants.

Roxas, Picazo & Mejia for appellants.

Ross, Selph, Carrascoso & Janda for appellee.

SYLLABUS95

1.ADMIRALTY; JURISDICTION; MARITIME CONTRACTS. — Admiralty has jurisdiction over all maritime contracts, in whatever form, wherever they were executed or are to be performed, but not over non-maritime contracts.

2.—ID.; ID.; MARITIME CONTRACTS DEPEND ON THE SUBJECT MATTER THEREOF. — Whether or not a contract is maritime depends not on the place where the contract is made and is to be executed, making the locality the test, but on the subject matter of the contract, making the true criterion a maritime service or a maritime transaction.

3.ID.; ID.; CONTRACT OF AFFREIGHTMENT; PROCEEDING "IN REM" OR "IN PERSONAM." — Admiralty has jurisdiction of a proceeding in rem or in personam for the breach of a contract of affreightment, whether evidenced by a bill of lading or a charter party. And typical of a controversy over contracts of affreightment is a suit of one party against the other for loss of or damage to the cargo.

4.PROHIBITION; COURTS; JURISDICTION; JUSTICE OF THE PEACE COURTS HAVE NO JURISDICTION IN ADMIRALTY CASES. — Cases in admiralty fall within the original jurisdiction of the Courts of First Instance to which the jurisdiction of the justice of the peace courts does not extend and if the latter courts take cognizance of such cases, they may be restrained by the writ of prohibition.

D E C I S I O N

PARAS, J p:

On July 9, 1947, the respondent-appellant, Yaras & Company, Far East, filed a complaint in the Municipal Court of Manila (civil case No. IV-262) against the Manila Terminal Co., Inc., and International Harvester Company of the Philippines. The complaint alleges that the defendant Manila Terminal Co., Inc., is in charge of the custody and delivery to the respective owners of cargoes discharged at the Government piers in the City of Manila; that the defendant International Harvester Company of the Philippines is the agent in the Philippines of the vessel Belle of this Sea; that on September 27, 1946, the S/S Belle of the Sea took on board at Los Angeles, California, U. S. A., goods for shipment to Manila, Philippines, and covered by Bill of Lading No. 105; that the S/S Bellee of the Sea arrived in Manila on December 23, 1946, and discharged her cargo at the Government piers under the supervision and custody of the defendant Manila Terminal Co., Inc.; that out of the goods covered by Bill of Lading No. 105, one carton of assorted samples with a stipulated value of P200 was not delivered to Yaras & Company; and said merchandise was lost through the negligence either of the Manila Terminal Co., Inc., or of the International Harvester Company of the Philippines. The complaint prayed for judgment either against the defendant Manila Terminal Co., Inc., or the International Harvester Company of the Philippines for the amount of P200, with legal interest from the date of the filing of the complaint.

Before the trial could be proceeded with, the International Harvester Company of the Philippines filed a motion to dismiss, on the ground that the Municipal Court of Manila had no jurisdiction to try the case because the action involves admiralty or maritime jurisdiction, which motion was overruled by the municipal court on December 16, 1947. In due time, the International Harvester Company of the Philippines filed in the Court of First Instance of Manila a petition for prohibition (civil case No. 4328) against the Hon. Crisanto Aragon, Judge of the Municipal Court of Manila, and Yaras & Company, Far East, for the purpose of restraining said respondent judge from proceeding with civil case No. IV-262 in so far as the International Harvester Company of the Philippines was concerned, on the ground that admiralty or maritime jurisdiction 16 involved. After trial, the Court of First Instance of Manila

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rendered judgment in favor of the petitioners, International Harvester Company of the Philippines, ordering the respondent judge of the municipal court to desist from taking cognizance of civil case No. IV-262 as against the International Harvester Company of the Philippines. From this judgment the respondents have appealed.

From the facts alleged in the complaint filed in the municipal court, it is clear that the International Harvester Company of the Philippines, as agent in the Philippines of the vessel S/S Belle of the Sea, is alternatively being held liable for the loss of the cargo in question through its negligence. Inasmuch as it is expressly alleged that the cargo of the S/S Belle of the Sea was discharged on December 23, 1946, at the Government piers under the supervision and custody of the Manila Terminal Company, Inc., the International Harvester Company of the Philippines may be held liable only on the assumption that the goods had been lost in transit or before being discharged at the pier. In other words, the liability of the International Harvester Company of the Philippines is predicated on the contract of carriage by sea between the International Harvester Company of the Philippines and Yaras & Company as evidenced by Bill of Lading No. 105, independently of the liability of the Manila Terminal Co., Inc., as operator of an arrastre service.

Admiralty has jurisdiction over all maritime contracts, in whatever form, wherever they were executed or are to be performed, but not over non-maritime contracts. (2 Corpus Juris Secundom, p. 84.) Whether or not a contract is maritime depends not on the place where the contract is made and is to be executed, making the locality the test, but on the subject-matter of the contract, making the true criterion a maritime service or a maritime transaction. (Id., p. 85.) Specifically, admiralty has jurisdiction of a proceeding in rem or in personam for the breach of a contract of affreightment, whether evidenced by a bill of lading or a charter party. (Id., pp. 90-91.) And typical of a controversy over contracts of affreightment is a suit of one party against the other for loss of or damage to the cargo. (1 American Jurisprudence, p. 567.) This is the very case now before us, because the respondent Yaras & Company seeks to recover from the petitioner International Harvester Company of the Philippines the value of a certain lost cargo.

The contention of the respondent Yaras & Company that admiralty jurisdiction is not involved herein because the contract in question was made upon land and to be terminated upon land, merely reflects the English rule which had long been rejected in the United States. It is now settled in the latter country that "the jurisdiction of admiralty in matters of contract depends upon the subject-matter, i. e., the nature and character of the contract, and that the English rule which conceded jurisdiction (with few exceptions) only to contracts made upon and to be performed upon navigable waters, is inadmissible, the true criterion being that the contract has reference to maritime service or maritime transaction." (Benedict on Admiralty, 6th Ed., Vol. 1, p. 127.) We choose to adopt the sound American rule. Even in England the English rule was not without protest. Lord Kenyon, in Menetone vs. Gibbons, 3 Term, 269, had expressed the following criticism: "if the admiralty has jurisdiction over the subject-matter, to say that it is necessary for the parties to go upon the sea to execute the instrument borders upon absurdity."

The respondent Yaras & Company cannot invoke the rule against multiplicity of suits, for the simple reason that said rule has to be subservient to the superior requirement that the court must have jurisdiction. In view of our conclusion that the cause of action of said respondent against International Harvester Company of the Philippines involves admiralty over which the courts of first instance have original jurisdiction (Par. 4, Sec. 56, Act No. 136 of the Philippine Commission, as reproduced in sec. 43 [d] of Republic Act No. 296), and to which the jurisdiction of the justice of the peace courts (including municipal courts) does not extend (sec. 68, Act No. 136 of the Philippine Commission, as amended by Commonwealth Act No. 4090, reproduced in par. 2, sec. 88, Republic Act No. 296), the respondent judge was properly restrained from further proceeding with civil case No. IV-262.

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We hold also that prohibition is the proper remedy, since the respondent judge was taking cognizance of the case over which he had no jurisdiction and his order overruling the motion to dismiss filed by the petitioner-appellee is interlocutory and therefore not appealable. (Sec. 2 of Rule 67, Rules of Court 2.) At any rate, the remedy of appeal available when the case shall have been decided on the merits, is inadequate.

The appealed judgment is therefore affirmed, with costs against the appellant Yaras & Company. So ordered.

Moran, C.J., Ozaeta, Feria, Bengzon, Padilla, Tuason, Montemayor and Reyes, JJ., concur.

[G.R. No. 155014. November 11, 2005.]

CRESCENT PETROLEUM, LTD., petitioner, vs. M/V "LOK MAHESHWARI," THE SHIPPING CORPORATION OF INDIA, and PORTSERV LIMITED and/or TRANSMAR SHIPPING, INC., respondents.

D E C I S I O N

PUNO, J p:

This petition for review on certiorari under Rule 45 seeks the (a) reversal of the November 28, 2001 Decision of the Court of Appeals in CA-G.R. No. CV-54920, 1which dismissed for "want of jurisdiction" the instant case, and the September 3, 2002 Resolution of the same appellate court, 2 which denied petitioner's motion for reconsideration, and (b) reinstatement of the July 25, 1996 Decision 3 of the Regional Trial Court (RTC) in Civil Case No. CEB-18679, which held that respondents were solidarily liable to pay petitioner the sum prayed for in the complaint.

The facts are as follows: Respondent M/V "Lok Maheshwari" (Vessel) is an oceangoing vessel of Indian registry that is owned by respondent Shipping Corporation of India (SCI), a corporation organized and existing under the laws of India and principally owned by the Government of India. It was time-chartered by respondent SCI to Halla Merchant Marine Co. Ltd. (Halla), a South Korean company. Halla, in turn, sub-chartered the Vessel through a time charter to Transmar Shipping, Inc. (Transmar). Transmar further sub-chartered the Vessel to Portserv Limited (Portserv). Both Transmar and Portserv are corporations organized and existing under the laws of Canada.

On or about November 1, 1995, Portserv requested petitioner Crescent Petroleum, Ltd. (Crescent), a corporation organized and existing under the laws of Canada that is engaged in the business of selling petroleum and oil products for the use and operation of oceangoing vessels, to deliver marine fuel oils (bunker fuels) to the Vessel. Petitioner Crescent granted and confirmed the request through an advice via facsimile dated November 2, 1995. As security for the payment of the bunker fuels and related services, petitioner Crescent received two (2) checks in the amounts of US$100,000.00 and US$200,000.00. Thus, petitioner Crescent contracted with its supplier, Marine Petrobulk Limited (Marine Petrobulk), another Canadian corporation, for the physical delivery of the bunker fuels to the Vessel.

On or about November 4, 1995, Marine Petrobulk delivered the bunker fuels amounting to US$103,544 inclusive of barging and demurrage charges to the Vessel at the port of Pioneer

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Grain, Vancouver, Canada. The Chief Engineer Officer of the Vessel duly acknowledged and received the delivery receipt. Marine Petrobulk issued an invoice to petitioner Crescent for the US$101,400.00 worth of the bunker fuels. Petitioner Crescent issued a check for the same amount in favor of Marine Petrobulk, which check was duly encashed.

Having paid Marine Petrobulk, petitioner Crescent issued a revised invoice dated November 21, 1995 to "Portserv Limited, and/or the Master, and/or Owners, and/or Operators, and/or Charterers of M/V 'Lok Maheshwari'" in the amount of US$103,544.00 with instruction to remit the amount on or before December 1, 1995. The period lapsed and several demands were made but no payment was received. Also, the checks issued to petitioner Crescent as security for the payment of the bunker fuels were dishonored for insufficiency of funds. As a consequence, petitioner Crescent incurred additional expenses of US$8,572.61 for interest, tracking fees, and legal fees. HCISED

On May 2, 1996, while the Vessel was docked at the port of Cebu City, petitioner Crescent instituted before the RTC of Cebu City an action "for a sum of money with prayer for temporary restraining order and writ of preliminary attachment" against respondents Vessel and SCI, Portserv and/or Transmar. The case was raffled to Branch 10 and docketed as Civil Case No. CEB-18679.

On May 3, 1996, the trial court issued a writ of attachment against the Vessel with bond at P2,710,000.00. Petitioner Crescent withdrew its prayer for a temporary restraining order and posted the required bond.

On May 18, 1996, summonses were served to respondents Vessel and SCI, and Portserv and/or Transmar through the Master of the Vessel. On May 28, 1996, respondents Vessel and SCI, through Pioneer Insurance and Surety Corporation (Pioneer), filed an urgent ex-parte motion to approve Pioneer's letter of undertaking, to consider it as counter-bond and to discharge the attachment. On May 29, 1996, the trial court granted the motion; thus, the letter of undertaking was approved as counter-bond to discharge the attachment.

For failing to file their respective answers and upon motion of petitioner Crescent, the trial court declared respondents Vessel and SCI, Portserv and/or Transmar in default. Petitioner Crescent was allowed to present its evidence ex-parte.

On July 25, 1996, the trial court rendered its decision in favor of petitioner Crescent, thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff [Crescent] and against the defendants [Vessel, SCI, Portserv and/or Transmar].

Consequently, the latter are hereby ordered to pay plaintiff jointly and solidarily, the following:

(a)the sum of US$103,544.00, representing the outstanding obligation;

(b)interest of US$10,978.50 as of July 3, 1996, plus additional interest at 18% per annum for the period thereafter, until the principal account is fully paid;

(c)attorney's fees of P300,000.00; and

(d)P200,000.00 as litigation expenses.

SO ORDERED.

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On August 19, 1996, respondents Vessel and SCI appealed to the Court of Appeals. They attached copies of the charter parties between respondent SCI and Halla, between Halla and Transmar, and between Transmar and Portserv. They pointed out that Portserv was a time charterer and that there is a clause in the time charters between respondent SCI and Halla, and between Halla and Transmar, which states that "the Charterers shall provide and pay for all the fuel except as otherwise agreed." They submitted a copy of Part II of the Bunker Fuel Agreement between petitioner Crescent and Portserv containing a stipulation that New York law governs the "construction, validity and performance" of the contract. They likewise submitted certified copies of the Commercial Instruments and Maritime Lien Act of the United States (U.S.), some U.S. cases, and some Canadian cases to support their defense.

On November 28, 2001, the Court of Appeals issued its assailed Decision, which reversed that of the trial court, viz:

WHEREFORE, premises considered, the Decision dated July 25, 1996, issued by the Regional Trial Court of Cebu City, Branch 10, is hereby REVERSED and SET ASIDE, and a new one is entered DISMISSING the instant case for want of jurisdiction. aCSEcA

The appellate court denied petitioner Crescent's motion for reconsideration explaining that it "dismissed the instant action primarily on the ground of forum non conveniens considering that the parties are foreign corporations which are not doing business in the Philippines."

Hence, this petition submitting the following issues for resolution, viz:

1.Philippine courts have jurisdiction over a foreign vessel found inside Philippine waters for the enforcement of a maritime lien against said vessel and/or its owners and operators;

2.The principle of forum non conveniens is inapplicable to the instant case;

3.The trial court acquired jurisdiction over the subject matter of the instant case, as well as over the res and over the persons of the parties;

4.The enforcement of a maritime lien on the subject vessel is expressly granted by law. The Ship Mortgage Acts as well as the Code of Commerce provides for relief to petitioner for its unpaid claim;

5.The arbitration clause in the contract was not rigid or inflexible but expressly allowed petitioner to enforce its maritime lien in Philippine courts provided the vessel was in the Philippines;

6.The law of the state of New York is inapplicable to the present controversy as the same has not been properly pleaded and proved;

7.Petitioner has legal capacity to sue before Philippine courts as it is suing upon an isolated business transaction;

8.Respondents were duly served summons although service of summons upon respondents is not a jurisdictional requirement, the action being a suitquasi in rem;

9.The trial court's decision has factual and legal bases; and,

10.The respondents should be held jointly and solidarily liable.

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In a nutshell, this case is for the satisfaction of unpaid supplies furnished by a foreign supplier in a foreign port to a vessel of foreign registry that is owned, chartered and sub-chartered by foreign entities.

Under Batas Pambansa Bilang 129, as amended by Republic Act No. 7691, RTCs exercise exclusive original jurisdiction "(i)n all actions in admiralty and maritime where the demand or claim exceeds two hundred thousand pesos (P200,000) or in Metro Manila, where such demand or claim exceeds four hundred thousand pesos (P400,000)." Two (2) tests have been used to determine whether a case involving a contract comes within the admiralty and maritime jurisdiction of a court — thelocational test and the subject matter test. The English rule follows the locational test wherein maritime and admiralty jurisdiction, with a few exceptions, is exercised only on contracts made upon the sea and to be executed thereon. This is totally rejected under the American rule where the criterion in determining whether a contract is maritime depends on the nature and subject matter of the contract, having reference to maritime service and transactions. 4 In International Harvester Company of the Philippines v. Aragon, 5 we adopted the American rule and held that "(w)hether or not a contract is maritime depends not on the place where the contract is made and is to be executed, making the locality the test, but on the subject matter of the contract, making the true criterion a maritime service or a maritime transaction." DEICaA

A contract for furnishing supplies like the one involved in this case is maritime and within the jurisdiction of admiralty. 6 It may be invoked before our courts through an action in rem or quasi in rem or an action in personam. Thus: 7

xxx xxx xxx

"Articles 579 and 584 [of the Code of Commerce] provide a method of collecting or enforcing not only the liens created under Section 580 but also for the collection of any kind of lien whatsoever." 8 In the Philippines, we have a complete legislation, both substantive and adjective, under which to bring an actionin rem against a vessel for the purpose of enforcing liens. The substantive law is found in Article 580 of the Code of Commerce. The procedural law is to be found in Article 584 of the same Code. The result is, therefore, that in the Philippines any vessel — even though it be a foreign vessel —found in any port of this Archipelago may be attached and sold under the substantive law which defines the right, and the procedural law contained in the Code of Commerce by which this right is to be enforced. 9 . . . But where neither the law nor the contract between the parties creates any lien or charge upon the vessel, the only way in which it can be seized before judgment is by pursuing the remedy relating to attachment under Rule 59 [now Rule 57] of the Rules of Court. 10

But, is petitioner Crescent entitled to a maritime lien under our laws? Petitioner Crescent bases its claim of a maritime lien on Sections 21, 22 and 23 ofPresidential Decree No. 1521 (P.D. No. 1521), also known as the Ship Mortgage Decree of 1978, viz:

Sec. 21.Maritime Lien for Necessaries; persons entitled to such lien. — Any person furnishing repairs, supplies, towage, use of dry dock or maritime railway, or other necessaries, to any vessel, whether foreign or domestic, upon the order of the owner of such vessel, or of a person authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall be necessary to allege or prove that credit was given to the vessel. jurcd06

Sec. 22.Persons Authorized to Procure Repairs, Supplies and Necessaries. — The following persons shall be presumed to have authority from the owner to procure repairs, supplies, towage, use of dry dock or marine railway, and other necessaries for the vessel: The

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managing owner, ship's husband, master or any person to whom the management of the vessel at the port of supply is entrusted. No person tortuously or unlawfully in possession or charge of a vessel shall have authority to bind the vessel.

Sec. 23.Notice to Person Furnishing Repairs, Supplies and Necessaries. — The officers and agents of a vessel specified in Section 22 of this Decree shall be taken to include such officers and agents when appointed by a charterer, by an owner pro hac vice, or by an agreed purchaser in possession of the vessel; but nothing in this Decree shall be construed to confer a lien when the furnisher knew, or by exercise of reasonable diligence could have ascertained, that because of the terms of a charter party, agreement for sale of the vessel, or for any other reason, the person ordering the repairs, supplies, or other necessaries was without authority to bind the vessel therefor.

Petitioner Crescent submits that these provisions apply to both domestic and foreign vessels, as well as domestic and foreign suppliers of necessaries. It contends that the use of the term "any person" in Section 21 implies that the law is not restricted to domestic suppliers but also includes all persons who supply provisions and necessaries to a vessel, whether foreign or domestic. It points out further that the law does not indicate that the supplies or necessaries must be furnished in the Philippines in order to give petitioner the right to seek enforcement of the lien with a Philippine court. 11

Respondents Vessel and SCI, on the other hand, maintain that Section 21 of the P.D. No. 1521 or the Ship Mortgage Decree of 1978 does not apply to a foreign supplier like petitioner Crescent as the provision refers only to a situation where the person furnishing the supplies is situated inside the territory of the Philippines and not where the necessaries were furnished in a foreign jurisdiction like Canada. 12

We find against petitioner Crescent. cCaATD

I.

P.D. No. 1521 or the Ship Mortgage Decree of 1978 was enacted "to accelerate the growth and development of the shipping industry" and "to extend the benefits accorded to overseas shipping under Presidential Decree No. 214 to domestic shipping." 13 It is patterned closely from the U.S. Ship Mortgage Act of 1920 and the Liberian Maritime Law relating to preferred mortgages. 14 Notably, Sections 21, 22 and 23 of P.D. No. 1521 or the Ship Mortgage Decree of 1978 are identical to Subsections P, Q, and R, respectively, of the U.S. Ship Mortgage Act of 1920, which is part of the Federal Maritime Lien Act. Hence, U.S. jurisprudence finds relevance to determining whether P.D. No. 1521 or the Ship Mortgage Decree of 1978 applies in the present case.

The various tests used in the U.S. to determine whether a maritime lien exists are the following:

One. "In a suit to establish and enforce a maritime lien for supplies furnished to a vessel in a foreign port, whether such lien exists, or whether the court has or will exercise jurisdiction, depends on the law of the country where the supplies were furnished, which must be pleaded and proved." 15 This principle was laid down in the 1888 case of The Scotia, 16 reiterated in The Kaiser Wilhelm II 17 (1916), in The Woudrichem 18 (1921) and in The City of Atlanta 19 (1924).

Two. The Lauritzen-Romero-Rhoditis trilogy of cases, which replaced such single-factor methodologies as the law of the place of supply. 20

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In Lauritzen v. Larsen, 21 a Danish seaman, while temporarily in New York, joined the crew of a ship of Danish flag and registry that is owned by a Danish citizen. He signed the ship's articles providing that the rights of the crew members would be governed by Danish law and by the employer's contract with the Danish Seamen's Union, of which he was a member. While in Havana and in the course of his employment, he was negligently injured. He sued the shipowner in a federal district court in New York for damages under the Jones Act. In holding that Danish law and not the Jones Act was applicable, the Supreme Court adopted amultiple-contact test to determine, in the absence of a specific Congressional directive as to the statute's reach, which jurisdiction's law should be applied. The following factors were considered: (1) place of the wrongful act; (2) law of the flag; (3) allegiance or domicile of the injured; (4) allegiance of the defendant shipowner; (5) place of contract; (6) inaccessibility of foreign forum; and (7) law of the forum.

Several years after Lauritzen, the U.S. Supreme Court in the case of Romero v. International Terminal Operating Co. 22 again considered a foreign seaman's personal injury claim under both the Jones Act and the general maritime law. The Court held that the factors first announced in the case of Lauritzen wereapplicable not only to personal injury claims arising under the Jones Act but to all matters arising under maritime law in general. 23

Hellenic Lines, Ltd. v. Rhoditis 24 was also a suit under the Jones Act by a Greek seaman injured aboard a ship of Greek registry while in American waters. The ship was operated by a Greek corporation which has its largest office in New York and another office in New Orleans and whose stock is more than 95% owned by a U.S. domiciliary who is also a Greek citizen. The ship was engaged in regularly scheduled runs between various ports of the U.S. and the Middle East, Pakistan, and India, with its entire income coming from either originating or terminating in the U.S. The contract of employment provided that Greek law and a Greek collective bargaining agreement would apply between the employer and the seaman and that all claims arising out of the employment contract were to be adjudicated by a Greek court. The U.S. Supreme Court observed that of the seven factors listed in the Lauritzen test, four were in favor of the shipowner and against jurisdiction. In arriving at the conclusion that the Jones Act applies, it ruled that the application of the Lauritzen test is not a mechanical one. It stated thus: "[t]he significance of one or more factors must be considered in light of the national interest served by the assertion of Jones Act jurisdiction. (footnote omitted) Moreover, the list of seven factors in Lauritzen was not intended to be exhaustive. . . . [T]he shipowner's base of operations is another factor of importance in determining whether the Jones Act is applicable; and there well may be others."

The principles enunciated in these maritime tort cases have been extended to cases involving unpaid supplies and necessaries such as the cases of Forsythe International U.K., Ltd. v. M/V Ruth Venture, 25 and Comoco Marine Services v. M/V El Centroamericano. 26

Three. The factors provided in Restatement (Second) of Conflicts of Law have also been applied, especially in resolving cases brought under the Federal Maritime Lien Act. Their application suggests that in the absence of an effective choice of law by the parties, the forum contacts to be considered include: (a) the place of contracting; (b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of the contract; and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties. 27

In Gulf Trading and Transportation Co. v. The Vessel Hoegh Shield, 28 an admiralty action in rem was brought by an American supplier against a vessel of Norwegian flag owned by a Norwegian Company and chartered by a London time charterer for unpaid fuel oil and marine diesel oil delivered while the vessel was in U.S. territory. The contract was executed in London. It was held that because the bunker fuel was delivered to a foreign flag vessel within the

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jurisdiction of the U.S., and because the invoice specified payment in the U.S., the admiralty and maritime law of the U.S. applied. The U.S. Court of Appeals recognized the modern approach to maritime conflict of law problems introduced in the Lauritzen case. However, it observed that Lauritzen involved a torts claim under the Jones Act while the present claim involves an alleged maritime lien arising from unpaid supplies. It made a disclaimer that its conclusion is limited to the unique circumstances surrounding a maritime lien as well as the statutory directives found in the Maritime Lien Statute and that the initial choice of law determination is significantly affected by the statutory policies surrounding a maritime lien. It ruled that the facts in the case call for the application of the Restatement (Second) of Conflicts of Law. The U.S. Court gave much significance to the congressional intent in enacting the Maritime Lien Statute to protect the interests of American supplier of goods, services or necessaries by making maritime liens available where traditional services are routinely rendered. It concluded that the Maritime Lien Statute represents a relevant policy of the forum that serves the needs of the international legal system as well as the basic policies underlying maritime law. The court also gave equal importance to the predictability of result and protection of justified expectations in a particular field of law. In the maritime realm, it is expected that when necessaries are furnished to a vessel in an American port by an American supplier, the American Lien Statute will apply to protect that supplier regardless of the place where the contract was formed or the nationality of the vessel. SHaATC

The same principle was applied in the case of Swedish Telecom Radio v. M/V Discovery I 29 where the American court refused to apply the Federal Maritime Lien Act to create a maritime lien for goods and services supplied by foreign companies in foreign ports. In this case, a Swedish company supplied radio equipment in a Spanish port to refurbish a Panamanian vessel damaged by fire. Some of the contract negotiations occurred in Spain and the agreement for supplies between the parties indicated Swedish company's willingness to submit to Swedish law. The ship was later sold under a contract of purchase providing for the application of New York law and was arrested in the U.S. The U.S. Court of Appeals also held that while the contacts-based framework set forth in Lauritzen was useful in the analysis of all maritime choice of law situations, the factors were geared towards a seaman's injury claim. As in Gulf Trading, the lien arose by operation of law because the ship's owner was not a party to the contract under which the goods were supplied. As a result, the court found it more appropriate to consider the factors contained in Section 6 of the Restatement (Second) of Conflicts of Law. The U.S. Court held that the primary concern of the Federal Maritime Lien Act is the protection of American suppliers of goods and services.

The same factors were applied in the case of Ocean Ship Supply, Ltd. v. M/V Leah. 30

II.

Finding guidance from the foregoing decisions, the Court cannot sustain petitioner Crescent's insistence on the application of P.D. No. 1521 or the Ship Mortgage Decree of 1978 and hold that a maritime lien exists.

First. Out of the seven basic factors listed in the case of Lauritzen, Philippine law only falls under one — the law of the forum. All other elements are foreign — Canada is the place of the wrongful act, of the allegiance or domicile of the injured and the place of contract; India is the law of the flag and the allegiance of the defendant shipowner. Balancing these basic interests, it is inconceivable that the Philippine court has any interest in the case that outweighs the interests of Canada or India for that matter.

Second. P.D. No. 1521 or the Ship Mortgage Decree of 1978 is inapplicable following the factors under Restatement (Second) of Conflict of Laws. Like the Federal Maritime Lien Act of the U.S.,

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P.D. No. 1521 or the Ship Mortgage Decree of 1978 was enacted primarily to protect Filipino suppliers and was not intended to create a lien from a contract for supplies between foreign entities delivered in a foreign port.

Third. Applying P.D. No. 1521 or the Ship Mortgage Decree of 1978 and rule that a maritime lien exists would not promote the public policy behind the enactment of the law to develop the domestic shipping industry. Opening up our courts to foreign suppliers by granting them a maritime lien under our laws even if they are not entitled to a maritime lien under their laws will encourage forum shopping.

Finally. The submission of petitioner is not in keeping with the reasonable expectation of the parties to the contract. Indeed, when the parties entered into a contract for supplies in Canada, they could not have intended the laws of a remote country like the Philippines to determine the creation of a lien by the mere accident of the Vessel's being in Philippine territory.

III.

But under which law should petitioner Crescent prove the existence of its maritime lien?

In light of the interests of the various foreign elements involved, it is clear that Canada has the most significant interest in this dispute. The injured party is a Canadian corporation, the sub-charterer which placed the orders for the supplies is also Canadian, the entity which physically delivered the bunker fuels is in Canada, the place of contracting and negotiation is in Canada, and the supplies were delivered in Canada. IHCESD

The arbitration clause contained in the Bunker Fuel Agreement which states that New York law governs the "construction, validity and performance" of the contract is only a factor that may be considered in the choice-of-law analysis but is not conclusive. As in the cases of Gulf Trading and Swedish Telecom, the lien that is the subject matter of this case arose by operation of law and not by contract because the shipowner was not a party to the contract under which the goods were supplied.

It is worthy to note that petitioner Crescent never alleged and proved Canadian law as basis for the existence of a maritime lien. To the end, it insisted on its theory that Philippine law applies. Petitioner contends that even if foreign law applies, since the same was not properly pleaded and proved, such foreign law must be presumed to be the same as Philippine law pursuant to the doctrine of processual presumption.

Thus, we are left with two choices: (1) dismiss the case for petitioner's failure to establish a cause of action 31 or (2) presume that Canadian law is the same as Philippine law. In either case, the case has to be dismissed.

It is well-settled that a party whose cause of action or defense depends upon a foreign law has the burden of proving the foreign law. Such foreign law is treated as a question of fact to be properly pleaded and proved. 32 Petitioner Crescent's insistence on enforcing a maritime lien before our courts depended on the existence of a maritime lien under the proper law. By erroneously claiming a maritime lien under Philippine law instead of proving that a maritime lien exists under Canadian law, petitioner Crescent failed to establish a cause of action. 33

Even if we apply the doctrine of processual presumption, the result will still be the same. Under P.D. No. 1521 or the Ship Mortgage Decree of 1978, the following are the requisites for maritime liens on necessaries to exist: (1) the "necessaries" must have been furnished to and for the benefit of the vessel; (2) the "necessaries" must have been necessary for the continuation of the

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voyage of the vessel; (3) the credit must have been extended to the vessel; (4) there must be necessity for the extension of the credit; and (5) the necessaries must be ordered by persons authorized to contract on behalf of the vessel. 34 These do not avail in the instant case.

First. It was not established that benefit was extended to the vessel. While this is presumed when the master of the ship is the one who placed the order, it is not disputed that in this case it was the sub-charterer Portserv which placed the orders to petitioner Crescent. 35 Hence, the presumption does not arise and it is incumbent upon petitioner Crescent to prove that benefit was extended to the vessel. Petitioner did not.

Second. Petitioner Crescent did not show any proof that the marine products were necessary for the continuation of the vessel.

Third. It was not established that credit was extended to the vessel. It is presumed that "in the absence of fraud or collusion, where advances are made to a captainin a foreign port, upon his request, to pay for necessary repairs or supplies to enable his vessel to prosecute her voyage, or to pay harbor dues, or for pilotage, towage and like services rendered to the vessel, that they are made upon the credit of the vessel as well as upon that of her owners." 36 In this case, it was the sub-charterer Portserv which requested for the delivery of the bunker fuels. The issuance of two checks amounting to US$300,000 in favor of petitioner Crescent prior to the delivery of the bunkers as security for the payment of the obligation weakens petitioner Crescent's contention that credit was extended to the Vessel.

We also note that when copies of the charter parties were submitted by respondents in the Court of Appeals, the time charters between respondent SCI and Halla and between Halla and Transmar were shown to contain a clause which states that "the Charterers shall provide and pay for all the fuel except as otherwise agreed." This militates against petitioner Crescent's position that Portserv is authorized by the shipowner to contract for supplies upon the credit of the vessel. TIDHCc

Fourth. There was no proof of necessity of credit. A necessity of credit will be presumed where it appears that the repairs and supplies were necessary for the ship and that they were ordered by the master. This presumption does not arise in this case since the fuels were not ordered by the master and there was no proof of necessity for the supplies.

Finally. The necessaries were not ordered by persons authorized to contract in behalf of the vessel as provided under Section 22 of P.D. No. 1521 or the Ship Mortgage Decree of 1978 — the managing owner, the ship's husband, master or any person with whom the management of the vessel at the port of supply is entrusted. Clearly, Portserv, a sub-charterer under a time charter, is not someone to whom the management of the vessel has been entrusted. A time charter is a contract for the use of a vessel for a specified period of time or for the duration of one or more specified voyages wherein the owner of the time-chartered vessel retains possession and control through the master and crew who remain his employees. 37 Not enjoying the presumption of authority, petitioner Crescent should have proved that Portserv was authorized by the shipowner to contract for supplies. Petitioner failed.

A discussion on the principle of forum non conveniens is unnecessary.

IN VIEW WHEREOF, the Decision of the Court of Appeals in CA-G.R. No. CV 54920, dated November 28, 2001, and its subsequent Resolution of September 3, 2002 are AFFIRMED. The instant petition for review on certiorari is DENIED for lack of merit. Cost against petitioner.

SO ORDERED.

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Austria-Martinez, Callejo, Sr. and Tinga, JJ., concur.

Chico-Nazario, J., is on leave.

[G.R. No. 29166. October 22, 1928.]

AUGUSTO LOPEZ, plaintiff-appellant, vs. JUAN DURUELO, ET AL., defendants. ALBINO JISON, appellee.

Angel S. Gamboa for appellant.

Feria & La O for appellee.

SYLLABUS

1.SHIPPING; COLLISION; PROTEST. — The protest required by article 835 of the Code of Commerce in case of collision between vessels is not necessary to preserve the rights of a person aboard a motor boat engaged in conveying passengers between ship and shore who is injured in a collision between the motor boat and the larger vessel.

2.ID.; ID.; ID.; CASE AT BAR. — A person desirous of embarking on a ship which was some distance away from the shore in a Philippine port took passage upon a small motor boat, which was used in conveying passengers and luggage to and fro between the shore and the shipside. Owing to the negligence of thepatron or incompetence of the person in charge — so the complaint averred — the boat approached too near to the stern of the ship, with the result that the propeller of the ship, which was still turning, struck the motor boat and sunk it, injuring the plaintiff. Held: Upon demurrer, that the failure of the complaint to allege that the plaintiff had made protest according to article 835 of the Code of Commerce was no impediment to the maintenance of a civil action, under articles 1902 and 1903 of the Civil Code, to recover damages for the tort.

3.ID.; ID.; ID.; MEANING OF WORD VESSEL. — The word "vessel " (Spanish, "buque," "nave") used in the Third Section of Title IV, Book Third, of the Code of Commerce, dealing with collisions, does not include all ships, craft or floating structures of any kind without limitation. The provisions of said section do not apply to minor craft engaged in river and bay traffic.

4.PLEADING AND PRACTICE; DEMURRER; INTERPRETATION OF PLEADING DEMURRED TO. — A case should not be dismissed on demurrer when, under any reasonable interpretation of the complaint, a cause of action can be made out; and the fact that a complaint is inartificially drawn or in a certain degree lacking in precision constitutes no sufficient reason for dismissing it on demurrer. In passing upon a demurrer, every reasonable intendment is to be taken in favor of the pleading against which the demurrer is directed.

D E C I S I O N

STREET, J p:

This action was instituted in the Court of First Instance of Occidental Negros by Augusto Lopez, for the purpose of recovering damages for personal injuries inflicted upon him by

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reason of the negligence of the defendants, Juan Duruelo and Albino Jison. The defendants demurred to the complaint, and the demurrer having been sustained, the plaintiff elected to stand upon his complaint, which was accordingly dismissed; and the plaintiff appealed.

The facts necessary to an understanding of the case as set out in the complaint are briefly these: On February 10, 1927, the plaintiff, who is a resident of the municipality of Silay, Occidental Negros, was desirous of embarking upon the interisland steamer San Jacinto in order to go to Iloilo. This boat was at the time in the anchoring ground of the port of Silay, some half a mile distant from the port. The plaintiff therefore embarked at the landing in the motor boat Jison, which was then engaged in conveying passengers and luggage back and forth from the landing to boats at anchor, and which was owned and operated by the defendant Albino Jison, with Juan Duruelo as patron. The engineer (maquinista) aboard on this trip was one Rodolin Duruelo, a boy of only 16 years of age. He is alleged to have been a mere novice without experience in the running of motor boats; and the day of the occurrence now in contemplation is said to have been the third day of his apprenticeship in this capacity. It is alleged that the Jison, upon this trip, was grossly overladen, having aboard fourteen passengers, while its capacity was only for eight or nine.

As the motor boat approached the San Jacinto in a perfectly quiet sea, it came too near to the stern of the ship, and as the propeller of the ship had not yet ceased to turn, the blades of the propeller struck the motor boat and sank it at once. It is alleged in the complaint that the approach of the Jison to this dangerous proximity with the propeller of the San Jacinto was due to the fault, negligence and lack of skill of the defendant Juan Duruelo, as patron of the Jison. As the Jison sank, the plaintiff was thrown into the water against the propeller, and the revolving blades inflicted various injuries upon him, consisting of a bruise in the breast, two serious fractures of the bones of the left leg, and a compound fracture of the left femur. As a consequence of these injuries the plaintiff was kept in bed in a hospital in the City of Manila from the 28th of February until October 19 of the year 1927, or approximately eight months. In the conclusion of his complaint the plaintiff sets out the various items of damage which he suffered, amounting in all to something more than P120,000. These damages he seeks to recover of the defendants in this action.

As a general ground of demurrer it is assigned by the defendants that the complaint does not show a right of action, and in the course of the argument submitted with the demurrer attention is directed to the fact that the complaint does not allege that a protest had been presented by the plaintiff, within twenty-four hours after the occurrence, to the competent authority at the port where the accident occurred. It is accordingly insisted that, under article 835 of the Code of Commerce, the plaintiff has shown no cause of action.

Assuming that the article of the Code of Commerce relied upon states a condition precedent to the maintenance of an action in a case where protest is required and that the making of protest must be alleged in the complaint in order to show a good cause of action — an assumption that is possibly without basis, for the reason that lack of protest in a case where protest is necessary would seem to supply matter of defense proper to be set up in the answer, — we nevertheless are of the opinion that protest was not necessary in the case now before us. The article in question (835, Code of Com.) in found in the section dealing with collisions, and the context shows the collisions intended are collisions of sea-going vessels. Said article cannot be applied to small boats engaged in river and bay traffic. The Third Book of the Code of Commerce, dealing with Maritime Commerce, of which the section on Collisions forms a part, was evidently intended to define the law relative to merchant vessels and marine shipping; and, as appears from said Code, the vessels intended in that Book are such as are run by masters having special training, with the elaborate apparatus of crew and equipment indicated in the Code. The word "vessel" (Spanish, "buque," "nave"), used in the section referred to was not intended to include all ships, craft or floating structures of every kind without limitation, and the provisions of that section should not be held to include minor craft engaged only in river and bay traffic. Vessels which are licensed to engage in maritime commerce, or commerce by sea, whether in foreign or coastwise trade, are no doubt

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regulated by Book III of the Code of Commerce. Other vessels of a minor nature not engaged in maritime commerce, such as river boats and those carrying passengers from ship to shore, must be governed, as to their liability to passengers, by the provisions of the Civil Code or other appropriate special provisions of law.

This conclusion is substantiated by the writer Estasen who makes comment upon the word "vessel" to the following effect:

"When the mercantile codes speak of vessels, they refer solely and exclusively to merchant ships, as they do not include war ships, and furthermore, they almost always refer to craft which are not accessory to another as is the case of launches, lifeboats, etc. Moreover, the mercantile laws, in making use of the words ship, vessel, boat, embarkation, etc., refer exclusively to those which are engaged in the transportation of passengers and freight from one port to another or from one place to another; in a word, they refer to merchant vessels and in no way can they or should they be understood as referring to pleasure craft, yachts, pontoons, health service and harbor police vessels, floating storehouses, warships or patrol vessels, coast guard vessels, fishing vessels, towboats, and other craft destined to other uses, such as for instance coast and geodetic survey, those engaged in scientific research and exploration, craft engaged in the loading and discharge of vessels from same to shore or docks, or in transhipment and those small craft which in harbors, along shore, bays, inlets, coves and anchorages are engaged in transporting passengers and baggage." (Estasen, Der. Mer., vol. IV, p. 195.)

In Yu Con vs. Ipil (41 Phil., 770), this court held that a small vessel used for the transportation of merchandise by sea and for the making of voyages from one port to another of these Islands, equipped and victualed for this purpose by its owner, is a vessel, within the purview of the Code of Commerce, for the determination of the character and effect of the relations created between the owners of the merchandise laden on it and its owner. In the case before us the Jison, as we are informed in the complaint, was propelled by a second-hand motor, originally used for a tractor plow; and it had a capacity for only eight persons. The use to which it was being put was the carrying of passengers and luggage between the landing at Silay and ships in the harbor. This was not such a boat as is contemplated in article 835 of the Code of Commerce, requiring protest in case of collision.

In Yu Con vs. Ipil, supra, the author of the opinion quotes a passage from the treatise on Mercantile Law by Blanco. We now have before us the latest edition of Blanco, and we reproduce here, in both Spanish and English, not only the passage thus quoted but also the sentence immediately following said passage; and this latter part of the quotation is quite pertinent to the point now under consideration.

Says Blanco:

"Las palabras 'nave' y 'buque, en su sentido gramatical, se aplican para designar cualquier clase de embarcaciones, grandes o pequeiias, mercantes o de guerra, significacion que no difiere esencialmente de la juridica, con arreglo a la cual se consideran buques para los efectos del Codigo y del Reglamento para la organizacion del Registro mercantil, no solo las embarcaciones destinadas a la navegacion de cabotaje o altura, sino tambien los diques flotantes, pontones, dragas, ganguiles y cualquier otro aparato flotante destinado a servicios de la industria o del comercio maritimo.

"Aun cuando, conforme a este concepto legal, parece que todo aparato flotante que sirve directamente para el trasporte de cosas o personas, o que indirectamente se relacionen con esta industria, han de sujetarse a los preceptos del Codigo sobre propiedad, transmision, derechos, inscripciones, etc., entendemos con el Sr. Benito (obra cit.) y asi ocurre en la practica, que no son aplicables a las pequeñas embarcaciones, que solo estan sujetas a los de la administracion de marina para el servicio de los puQrtos o ejercicio de la industria de la pesca." (Blanco, Der. Mer., vol. II, pag. 22.)

"The words 'ship' (nave) and 'vessel' (buque), in their grammatical sense, are applied to designate every kind of craft, large or small, merchant vessels or war vessels, a

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signification which does not differ essentially from its juridical meaning, according to which vessels for the purposes of the Code and Regulations for the organization of the Mercantile Registry, are considered not only those engaged in navigation, whether coastwise or on the high seas, but also floating docks, pontoons, dredges, scows and any other floating apparatus destined for the service of the industry or maritime commerce.

"Yet notwithstanding these principles from which it would seem that any floating apparatus which serves directly for the transportation of things or persons or which indirectly is related to this industry, ought to be subjected to the principles of the Code with reference to ownership, transfer, rights, registration, etc., we agree with Benito (cobra cit.) and it so happens in practice that they are not applicable to small craft which are only subject to administrative (customs) regulations in the matter of port service and in the fishing industry."

We may add that the word "nave" in Spanish, which is used interchangeably with "buque" in the Code of Commerce, means, according to the Spanish-English Dictionary compiled by Edward R. Bensley and published at Paris in the year 1896, "Ship, a vessel with decks and sails." Particularly significant in this definition is the use of the word "decks," since a deck is not a feature of the smallest types of water craft.

In this connection a most instructive case from a Federal Court in the United States is that of The Mamie (5 Fed., 813), wherein it was held that only vessels engaged in what is ordinarily known as maritime commerce are within the provisions of law conferring limited liability on the owner in case of maritime disaster. In the course of the opinion in that case the author cites the analogous provisions in the laws of foreign maritime nations, especially the provisions of the Commercial Code of France; and it is observed that the word "vessel" in these codes is limited to ships and other sea-going vessels. "Its provisions are not applicable," said the court, "to vessels in inland navigation, which are especially designated by the name of boats." Quoting from the French author Dufour (1 Droit Mer. 121), the writer of the opinion in the case cited further says: "Thus, as a general rule, it appears to me clearly, both by the letter and spirit of the law, that the provisions of the Second Book of the Commercial Code [French] relate exclusively to maritime and not to fluvial navigation; and that consequently the word 'ship,' when it is found in these provisions, ought to be understood in the sense of a vessel serving the purpose of maritime navigation or seagoing vessel, and not in the sense of a vessel devoted to the navigation of rivers."

It is therefore clear that a passenger on a boat like the Jison, in the case before us, is not required to make protest as a condition precedent to his right of action for the injury suffered by him in the collision described in the complaint. In other words, article 835 of the Code of Commerce does not apply. But even if said provision had been considered applicable to the case in hand, a fair interpretation of the allegations of the complaint indicates, we think, that the injuries suffered by the plaintiff in this case were of such a nature as to excuse protest; for, under article 836, it is provided that want of protest cannot prejudice a person not in a condition to make known his wishes. An individual who has suffered a compound fracture of the femur and received other physical injuries sufficient to keep him in a hospital for many months, cannot be supposed to have been in a condition to make protest within twenty-four hours of such occurrence. It follows that the demurrer in this case was not well taken and should have been overruled.

In their brief in this court the attorneys for the defendant have criticized the complaint for a general lack of certainty and precision in more than one respect. However, we have read the document attentively and, in our opinion, it states a good cause of action upon a civil liability arising from tort under articles 1902 and 1903 of the Civil Code, and our attention has not been drawn to any provision of law which would constitute an obstacle to the maintenance of the action.

We have repeatedly called the attention of trial courts to the general rule that a case should not be dismissed on demurrer when, under any reasonable interpretation of the complaint, a cause of action can be made out; and the fact that a complaint is inartificially

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drawn or in a certain degree lacking in precision constitutes no sufficient reason for dismissing it. In passing upon a demurrer, every reasonable intendment is to be taken in favor of the pleader. In this connection it should be borne in mind that if a complaint does not show a good cause of action, the action can be dismissed at a later stage of the proceedings; and even where no objection has been previously made, the point can be raised in the Supreme Court under section 93 of the Code of Civil Procedure (Abiera vs. Orin, 8 Phil., 193). Little or no appreciable prejudice to the defendant will therefore ordinarily result from overruling a demurrer, and no harm is done to anyone by requiring the defendant to answer. On the contrary, grave prejudice may result to a plaintiff from the erroneous sustaining of a demurrer, because of the delay and even expense necessary to set the matter right upon appeal.

The judgment appealed from is reversed, the demurrer overruled, and the defendant is required to answer the complaint within five days after notification of the return of this decision to the court of origin. So ordered, with costs against the appellee.

Johnson, Malcolm, Villamor and Romualdez, JJ., concur.

Ostrand, J., concurs in the result.

Lozman v. City of Riviera Beach

US Supreme Court No. 11-626

Lozman’s floating home was a plywood structure with empty bilge space underneath to keep it

afloat. He had it towed several times before deciding on a marina owned by the city of Riviera

Beach. After various disputes and unsuccessful efforts to evict him from the marina, the city

brought an admiralty lawsuit in rem against the home, seeking a lien for dockage fees and

damages for trespass. The district court found the floating home to be a “vessel” under the Rules

of Construction Act, which defines a “vessel” as including “every description of watercraft or

other artificial contrivance used, or capable of being used, as a means of transportation on

water,” 1 U. S. C. 3; concluded that admiralty jurisdiction was proper; and awarded fees and

damages. The Eleventh Circuit affirmed, noting that the home was “capable” of movement over

water despite subjective intent to remain moored indefinitely. The Supreme Court reversed,

holding that the case was not moot, although the home has been destroyed. Lozman’s floating

home is not a “vessel.” The definition of “transportation” must be applied in a practical way; a

structure does not fall within its scope unless a reasonable observer, looking to the home’s

physical characteristics and activities, would consider it designed to a practical degree for

carrying people or things over water. But for the fact that it floats, nothing about Lozman’s home

suggests that it was designed to any practical degree to transport persons or things over water.

It had no steering mechanism, had an unraked hull and rectangular bottom 10 inches below

water, and had no capacity to generate or store electricity. It lacked self-propulsion, unlike an

ordinary houseboat. The Court considered only objective evidence to craft a “workable and

consistent” definition that “should offer guidance in a significant number of borderline cases.”

[G.R. No. 9235. November 17, 1915.]

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THE UNITED STATES OF AMERICA and THE INSULAR COLLECTOR OF CUSTOMS, plaintiffs-appellants, vs. THE STEAMSHIP "RUBI," represented by Warner, Barnes & Co. (Ltd.), general agents in the Philippine Islands for her owners, defendant-appellee.

Solicitor-General Harvey for appellants.

Haussermann, Cohn & Fisher for appellee.

SYLLABUS

1.CUSTOMS DUTIES; UNMANIFESTED CARGO. — The penalty prescribed in section 77 of Act No. 355 as amended may be imposed when unmanifested cargo is found on board a vessel "from a foreign port or place," notwithstanding the absence of affirmative proof that such unmanifested cargo was taken on board at some foreign port or place.

2.ID.; ID.; VESSEL FROM FOREIGN PORTS LICENSED FOR COASTWISE TRADE. — When a vessel from a foreign port engaged in a continuous voyage is licensed for carrying on coasting trade, and touches at various ports within the Philippine Islands, she is not relieved from the duty of having her cargo duly manifested when she enters any such port.

3.ID.; ID.; "CARGO" CONSTRUED. — In the case of United States vs. Steamship Islas Filipinas (28 Phil. Rep., 291), we said that the term "cargo" as used in Section 77 of Act No. 355, as amended by section 2 of Act No. 1235 includes "all goods, wares, and merchandise aboard ship which do not form part of the ship's stores," but while this language was sufficiently inclusive for the purpose of the case then under consideration, it is too narrow rather than too broad if intended as a definition of that word.

4.ID.; ID.; ID. — The word "cargo" as used in this section refers to "the entire lading of the ship which carries it" and includes all goods, wares, merchandise, effects, and indeed everything of every kind or description, found on board, except such things as are used or intended for use in connection with the management or direction of the vessel, and are not intended for delivery at any port of call, and except also, perhaps, "passengers or immigrants and their baggage."

5.ID.; ID.; KNOWLEDGE OF SHIP'S OFFICERS. — The imposition of the penalty prescribed in section 77 of the Act is not limited to cases wherein it appears that the captain or the ship's officers knowingly or willfully omitted any part of the cargo from the manifests.

D E C I S I O N

CARSON, J p:

This is an appeal by the United States and the Insular Collector of Customs from a judgment of the Court of First Instance of Manila dismissing the petition of plaintiffs for a judgment confirming the action of the Insular Collector of Customs in imposing an administrative fine on the steamship Rubi for bringing unmanifested cargo into the port of Manila. The case was submitted for judgment on an agreed statement of facts the substance of which is set forth in the opinion of the trial judge, as follows:

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"From this statement of facts I find that on the 9th day of February, 1913, the defendant steamer arrived in the city of Manila from a coastwise port but while on a continuous voyage from the foreign port of Hongkong.

"That at the time of her arrival in the port of Manila she had on board concealed in an unknown place 13.380 kilos of opium and 2.620 kilos of morphine.

"That at the same time the steamer had other cargo which was duly manifested as required by law, and that the said opium and morphine were not manifested.

"That while the steamer was lying in the harbor two members of the steamer's crew, one known as a 'coal passer' and the other as a 'donkey man,' attempted to discharge the opium and morphine from the vessel but in doing so delivered it to secret service agents of the Bureau of Customs.

"That thereupon the defendant steamer was seized and the Collector of Customs imposed a penalty of P500 on account of the violation of section 77 of Act No. 355, the usual proceedings having been followed in imposing the penalty."

The trial judge dismissed the petition on the ground that "there was no knowledge on the part of the master of the vessel of the opium and morphine, and so far as he was concerned it was not cargo. He being the master of the vessel, who should make manifests of all cargo, could not manifest that which he did not know of, and the vessel could not know more or have knowledge of more than he had, for his knowledge was that of the vessel.

"In order to bring the vessel within the penalizing clause of this law it would be necessary to show some knowledge and intent for the carrying of unmanifested cargo, or such carelessness as to create the presumption of knowledge or intention, which does not appear from the evidence in this case, but on the contrary the evidence clearly discloses that the defendant vessel, through its specific agent mentioned in the law, had no knowledge of such cargo. The law does not contemplate penalizing the inanimate vessel or its owner for doing that of which it had no knowledge."

In the recently decided case of the United States of America and the Insular Collector of Customs vs. The Steamship Islas Filipinas, represented by her owners Fernandez Hermanos (28 Phil. Rep., 291), wherein the facts were very similar to those stipulated in the court below, we ruled adversely to most of the contentions of the appellee in this case, at the same time sustaining contentions which are substantially identical with those upon which the present appellants rest their appeal. In the former case, however, no real question arose as to the fact that the unmanifested cargo came from a foreign port; and it clearly appeared that the captain of the vessel willfully, and with intent to smuggle and to import prohibited drugs into the Philippine Islands, omitted the goods from the manifest. The present case is to be distinguished from that case in that it is expressly stipulated that the time when and the place where the unmanifested goods were placed on board the Rubi were unknown to the defendants, these goods having been discovered on February 9, 1913, after the vessel, which had arrived in Manila from Hongkong on January 30, 1913, had touched, in the course of her voyage, at the ports of Mangarin, Iloilo, Cebu, and returned to Manila a second time; and further because it does not appear that the captain, or any of the officers of the Rubi had any knowledge of the presence of the unmanifested goods on the ship, these goods having been brought on board surreptitiously by two members of the crew, who attempted to land them in Manila without the knowledge and against the wishes of the owners, the captain and the other officers of the ship, and despite their diligent efforts to prevent the smuggling of such goods into the Philippine Islands.

The penalties were imposed by the Collector of Customs in both of these cases on charges of violations of the provisions of section 77 of Act No. 355, as amended by section 2 of Act No. 1235, which is as follows:

"Every vessel from a foreign port or place must, under a penalty of not exceeding five hundred dollars for failure, have on board complete written or typewritten manifests of all her cargo, signed by the master. All of the cargo intended to be landed at a port in the Philippine Archipelago must be described in separate manifests for each port of call

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therein. Each manifest shall include the port of departure and the port of delivery, with the marks, numbers, quantity, and description of the packages and the names of the consignees thereof. Every vessel from a foreign port or place must have on board complete manifests of passengers, immigrants and their baggage, in the prescribed form, setting forth their destination and all particulars required by the immigration laws; and every such vessel shall have prepared for presentation to the proper customs official, upon arrival in ports of the Philippines, a complete list of all ship's stores then on board, which must be certified thereto by the master thereof.

Every vessel entering Philippine ports from a foreign port must carry manifests as hereinbefore provided, whether she carries cargo, passengers, or immigrants and their baggage, or not. If any such vessel does not carry cargo, passengers, or immigrants, the manifests must show that no cargo is carried from the port of departure to the port of destination in the Philippine Archipelago. Manifests in substantial compliance with these requirements shall be accepted, whether in English or in the language of the nation to which the vessel belongs. If in a language other than English, the master must furnish the number of translated copies required by the Collector."

Counsel for appellees vehemently contend on this appeal that the provisions of this section of the Act are intended to penalize "vessels for bringing unmanifested cargo into a port of the Philippine Islands from a foreign port," and insist that unless it affirmatively appears that unmanifested cargo was put on board in a foreign port and carried by the vessel into the Philippine Islands, the penalties provided in this section cannot be imposed. Emphasis is laid upon the language of the statute, which provides that:

"Every vessel from a foreign port or place must, etc.

"Every vessel from a foreign port or place must have, etc.

"Every vessel entering Philippine ports from a foreign port must carry manifests, etc.

"If such vessel does not carry cargo, etc.

"If any merchandise be found on board any vessel from a foreign port, etc."

Relying upon these provisions of the statute, counsel contend that: "The violation of this statute which is alleged in the present case consists of having brought certain opium and morphine from Hongkong to Manila on January 30, 1913, without the same having appeared on the manifests presented."

It will be seen however that while the penalty prescribed in section 77 of Act No. 355 can be incurred only by vessels "from a foreign port or place," there is nothing in the statute which justifies the inference that the penalties prescribed for having on board unmanifested goods are applicable only in cases where it affirmatively appears that such goods have been imported from abroad. Under the express terms of the statute the penalty may be imposed if any unmanifested cargo is found on board such vessels, and there is no provision, express or implied, which forbids its imposition in the absence of proof as to the place where or the time when such unmanifested cargo is placed aboard the vessel. Doubtless one of the purposes sought to be attained by penalizing the failure to manifest all cargo on board such vessels is to prevent the smuggling into the Islands of foreign goods; but it would tend largely to defeat this, as well as the other purposes and objects sought to be attained by the statute, if the penalty prescribed for having on board unmanifested goods could only be imposed upon the production of affirmative proof that such goods had been surreptitiously placed on board at some foreign port rather than upon the high seas or at any one of various ports at which vessels from foreign ports are permitted to touch in the Philippine Islands. In the very nature of things such proof would not be available in many if not most cases of violations of the statute. The surreptitious or unlawful importation or smuggling of goods into the Philippine Islands is severely penalized elsewhere in the statute, and the penalties prescribed in the section under consideration are not imposed for that offense but for the failure of the ship and its officers to comply with the regulations contained therein in regard to the manifesting of the cargo on board. In the absence of an express pro- vision limiting the imposition of the

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penalty to cases wherein it affirmatively appears that the unmanifested goods had been placed on board at a foreign port, we would not be justified in holding that the Collector of Customs erred in imposing a fine for the violation of a statute requiring that all vessels from a foreign port or place should "have on board complete written or typewritten manifests of all her cargo, signed by the master," merely because he cannot produce evidence as to the place at which such unmanifested cargo was taken aboard the vessel.

It is contended that if the unmanifested goods were placed on board the Rubi at the ports of Mangarin, Iloilo, or Cebu, at which she touched before her return to Manila on February 9, 1913, when the fact that these goods were on board was first discovered, there might have been a violation of sections 136 and 137 of the statute, which provides for the manifesting of goods on board vessels licensed "for carrying on coasting trade in the Philippine Islands," but that there would have been no violation of the provisions of the above cited section 77 of the Act. We are of opinion, however, that while sections 136 and 137 are applicable to all vessels licensed for carrying on coasting trade within the Philippine Islands, the existence of those regulations is in no wise in conflict with the regulations contained in section 77 of the Act which require that "every vessel from a foreign port or place must, under a penalty of not exceeding one thousand pesos for failure, have on board complete written or typewritten manifests of all her cargo, signed by the master." So that if a vessel from a foreign port or place engaged in a continuous voyage is "licensed for carrying on coasting trade," and touches at various ports within the Islands, she is not thereby relieved from the duty of having her cargo duly manifested when she enters any such port. In this connection it may be proper to observe that while it affirmatively appears that at the time of the seizure the Rubi was a vessel from a foreign port or place, it does not appear whether she was or was not licensed to engage in the coasting trade in the Philippines.

In the former case, United States vs. Steamship Islas Filipinas, (28 Phil. Rep., 291), we held that the term "cargo" as used in section 77 of Act No. 355, as amended by section 2 of Act No. 1235, includes "all goods, wares and merchandise aboard ship which do not form part of the ship's stores," and in support of our ruling we relied in part upon the rulings in the case of Phile vs. The Anna (1 Dallas [U. S.] 202.) In the case at bar it is vigorously contended that this definition of the word "cargo" is too broad, and that it is unjust, unreasonable and against the principles announced in the case of Phile vs. The Anna (supra) to hold that it is intended to include such articles when it appears that they were placed on board a vessel without the knowledge or consent of the owners, the master or the ship's officers.

We are of opinion, however, that the language used in the former decision, while sufficiently inclusive for the purpose of the case then under consideration, is if anything too narrow rather than too broad if intended as a definition of the word "cargo" as used in the first paragraph of that section. Certainly this is true if the words "goods, wares and merchandise" are taken in the strictly technical and limited sense sometimes attributed to them in-commercial law. Having in mind the context, and the purposes and objects sought to be obtained by the enactment of this statute, we are satisfied that the word "cargo" as used in the first paragraph of section 77 refers to the "entire lading of the ship which carries it" and includes all goods, wares, merchandise, effects, and indeed everything, of every kind or description, found on board, except such things as are used or intended for use in connection with the management or direction of the vessel and are not intended for delivery at any port of call, and except also, perhaps, "passengers or immigrants and their baggage." Manifests are required for "passengers or immigrants and their baggage," and the word "cargo" has sometimes been used with reference to passengers and immigrants (7 M. & G. 729, 744), but in view of the apparent classification of the kinds of manifests prescribed in the section under consideration into manifests of "cargo," and manifests of "passengers or immigrants and their baggage," we expressly reserve our Opinion as to whether the word "cargo" in the first paragraph of this section was intended by the legislator to include the latter.

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The evident intent and object of these requirements for the submission of manifests by all vessels from foreign ports is to impose upon the owners and officers of such vessels an imperative obligation to submit lists of the entire lading of the ship in the prescribed form, in order to facilitate the labors of the customs and immigration officers, and to defeat any attempt to make use of such vessels to secure the unlawfully entry of persons or things into the Islands. No exception is made in the statute, and the recognition of any attempt to read an exception into the statute could hardly fail to defeat the purpose of its enactment.

It is contended, however, upon the authority of the case of Phile vs. The Anna (supra) and of some decisions of inferior federal courts, that it would be a great injustice and not in accord with the spirit and intent of the law to penalize the owners or officers of a vessel for the failure to manifest goods found on board, which were brought aboard without their knowledge and despite the exercise of due diligence on their part to prevent it, and this especially when the goods thus found on board are of small value or such as might easily escape the vigilance of the ship's officers.

It is true that in the case of Phile vs. The Anna (supra), Governor Cushman (Fed. Case 5646) and in some other cases the courts have held or intimated that it could not have been the intention of the legislator to impose the penalty prescribed for breaches of the revenue laws under such circumstances. But we think that, on examination, it will be found that in these cases the rulings in this regard are based on the enormous disproportion between the penalty of forfeiture of the vessel which was sought to be enforced in these cases and the alleged mischief sought to be remedied. The reasoning on which those decisions rest is not, as we understand it, that the legislator could not have prescribed a penalty for any and every failure to manifest the entire cargo, but that the legislator could not have intended to pre- scribe the forfeiture of the vessel as a penalty for the unintentional omission of some trifle from the ship's manifests, without the knowledge or consent of the owners and despite the exercise of reasonable diligence by the ship's officers.

In this jurisdiction, however, the penalty prescribed by the section under consideration is a fine of not more than $500, so that, in the exercise of a sound discretion, the amount of the penalty imposed in each case may be and should be proportioned to the gravity of the particular violation of the statute on account of which it is imposed. Manifestly a penalty of this nature is not sufficient to sustain an implied exception to the general provisions of the Philippine statute such as the courts in some cases appear to have read into certain American statutes prescribing the forfeiture of the vessel for violations of their provisions.

There is nothing in section 77 of the Act which indicates any intention on the part of the legislator to limit the imposition of the prescribed penalty to cases where the captain or the ship's officers knowingly or willfully omitted any part of the cargo from the manifests. This section in unequivocal terms prescribes the imposition of the penalty in all cases of such omissions, and read together with section 303, which imposes penalties or forfeitures on the master of the vessels in such cases, it cannot be doubted that the intention of the legislator was to provide for the imposition of the prescribed penalties, whether such omissions occurred with or without the knowledge of the owner or the officers of the vessels. Section 303 is here inserted, because both by its terms and the nature of the penalties prescribed it makes very clear the intention of the legislator to penalize omissions from the ship's manifest, whether made with or without the knowledge of the owners, or of the ship's officers charged with the preparation of the required manifests.

"SEC. 303.Except as provided by the last preceding section, if any merchandise be found on board any vessel from a foreign port which is not included in her manifests, produced as required by this Act, the master shall forfeit an amount equal to double the duties fixed therefor: Provided always, That if it appears to the collector that such omissions occurred with intent to defraud the revenue, the master shall in addition forfeit an amount equal to the value of the merchandise not manifested. and all such merchandise belonging or consigned to the officers or crew of the vessel shall be seized and forfeited; but if such merchandise belongs to any other person acting in good faith the

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same shall be released upon payment of the regular duties and charges thereon. If any package or article named on the manifest be missing on the arrival of the vessel, or if the merchandise on board does not otherwise agree with the manifest delivered by the master, except as above prescribed, the master shall be liable to a penalty of not less than two hundred and fifty dollars and not more than two thousand five hundred dollars and in addition an amount equal to the value of the said missing merchandise as ascertained by the collector of customs, unless the collector shall be satisfied that such deficiency or disagreement occurred without fraudulent intent, in which case said penalty shall not be inflicted:Provided, nevertheless, That if such disagreement or deficiency is found by the collector to be due to the carelessness, negligence, or incompetence of the master of the vessel, her owners, or agents, a penalty of not more than the value thereof may be imposed upon the master for each package missing or materially disagreeing in marks, character, or otherwise with the description thereof in the manifest.

"All penalties inflicted under the provisions of this section shall be forthwith reported to the Insular Collector with full particulars of the offense committed and of the previous conduct of the master in like matters."

Counsel for appellant cites us to certain cases decided in some of the inferior federal courts (U. S. vs. Stadacona, Fed. Case 16371; U. S. vs. Missouri, Fed. Case 15785) which hold, under the statutes relied upon in those cases, that where "no personal delinquency is imputable to the master," "a sense of justice to the master" forbids the imposition of the prescribed penalty as to him. We are of opinion however that in view of the express provisions of the Philippine statute, and of the nature of the prescribed penalties, and in view also of the manifest intention of the legislator to provide for the imposition of penalties for omissions from ship's manifests, whether made with or without the knowledge of the owner or ship's officers, we would not be justified in adopting and following the reasoning of the decisions in those cases The power of the legislator to prescribe such penalties is clearly sustained in the opinion of the Supreme Court of the United States in the case of United States vs. Brig Malek Adhel (43 U. S., 210) from which we cite the following:

"The next question is, whether the innocence of the owners can withdraw the ship from the penalty of confiscation under the Act of Congress. Here, again, it may be remarked that the Act makes no exception whatsoever, whether the aggression be with or without the cooperation of the owners. The vessel which commits the aggression is treated as the offender, as the guilty instrument or thing to which the forfeiture attaches, without any reference whatsoever to the character or conduct of the owner. The vessel or boat (says the Act of Congress) from which such piratical aggression, etc., shall have been first attempted or made shall be condemned. Nor is there anything new in a provision of this sort. It is not an uncommon course in the admiralty, acting under the law of nations, to treat the vessel in which or by which, or by the master or crew thereof, a wrong or offense has been done as the offender, without any regard whatsoever to the personal misconduct or responsibility of the owner thereof.

"And this is done from the necessity of the case, as the only adequate means of suppressing the offense or wrong, or insuring an indemnity to the injured party. The doctrine also is familiarly applied to cases of smuggling and other misconduct under our revenue laws; and has been applied to other kindred cases, such as cases arising on embargo and non-intercourse acts. In short, the acts of the master and crew, in cases of this sort, bind the interest of the owner of the ship, whether he be innocent or guilt; and he impliedly submits to whatever the law denounces as a forfeiture attached to the ship by reason of their unlawful or wanton wrongs. In the case of The United States vs. The Schooner Little Charles (1 Brock. Rep., 347, 354), a case arising under the embargo laws, the same argument which has been addressed to us, was upon that occasion addressed to Mr. Chief Justice Marshall. The learned judge, in reply, said: 'This is not a proceeding against the owner; it is a proceeding against the vessel for an offense committed by the vessel; which is not the less an offense, and does not the less subject her to forfeiture because it was committed without the authority and against the will of the owner. It is true that inanimate matter can commit no offense. But this body is animated and put in

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action by the crew, who are guided by the master. The vessel acts and speaksby the master. She reports herself by the master. It is therefore not unreasonable that the vessel should be affected by this report.' The same doctrine was held by this court in the case of The Palmyra (12 Wheat. R 1, 14) where, referring to seizures in revenue causes, it was said: 'The thing is here primarily considered as the offender, or rather the offense is primarily attached to the thing and this whether the offense be malum prohibitum or malum in re. The same thing applies to proceeding in rem or seizures in the Admiralty.' "

As will be seen from the foregoing citation, as well as from the citations set forth in the former case (U. S. vs. The Steamship Islas Filipinas, supra), the doctrine is well established in pursuance of which the owner of a vessel may be made to suffer for the acts or omissions of the officers and crew, "without any regard whatsoever to the character or responsibility of the owner," from "the necessity of the case, as the only adequate means of suppressing the offense, or wrong." In many if not in most instances of violations of the provisions of section 77 of the statute it would be practically impossible to establish the connivance or willful participation of the master in the surreptitious lading of his ship with unmanifested goods, unless they were of such bulk as to render the inference of guilty knowledge irresistible. There would be but small prospects of success in the attempt to suppress the practice of carrying unmanifested goods on vessels from foreign ports by the imposition of penalties on the ship or the master, if the imposition of such penalties were made dependent on the production of affirmative proof that such omissions had been made knowingly by the master or that the unmanifested goods had been brought aboard with his connivance. Under such circumstances the legislator has seen fit to prescribe penalties in all cases where unmanifested cargo is found on the vessel, whether it appears that such cargo was placed on board with or without the consent or knowledge of the owners or ship's officers and despite the possibility of individual hardships in some instances. We are of opinion that there can be no real question as to the power of the legislator to enact such legislation, and we are not greatly impressed by contentions of counsel based upon the alleged injustices and hardships which it is said must result from the rigid enforcement of the statute.

In the first place, it is always within the power of the ship's officers to render it extremely difficult if not practically impossible for members of the crew or other persons to conceal unmanifested goods on board ship. Their disciplinary control of the ship, the crew, and indeed of every person on board, if duly exercised, should render such concealments of unmanifested cargo rare indeed.

In the second place, we think that the danger of real hardship or injustice arising from the imposition of harsh or oppressive penalties under the provisions of sections 77 of the Act is substantially provided against by the discretion conferred upon the Collector of Customs under the supervision of the courts whereby he may impose any penalty, from an amount merely nominal up to a maximum of $500.

We conclude that the judgment entered in the court below should be reversed, with the costs of this instance de oficio, and that the record should be remanded to the court below with instructions to enter the appropriate orders in accord with the prayer of the petition. So ordered.

Arellano, C.J. and Trent, J., concur.

Johnson, J., concurs in the result.

Torres and Araullo, JJ., dissent.

[G.R. No. L-49140. November 19, 1982.]

QUASHA ASPERILLA ANCHETA VALMONTE PEÑA & MARCOS, petitioner, vs. THE HONORABLE CELESTINO P. JUAN, FILIPINAS

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CARRIERS, INC., represented by its President, FEDERICO TABORA, JR., APOLLO KOKIN TRADING CO., LTD., et al., respondents.

Quasha, Asperilla, Ancheta, Valmonte, Peña and Marcos Law Offices for petitioner.

Eugene A. Tan for respondent Sierra Madre Wood Industries, Inc.

Antonio V. Raquiza & Assoc. for respondent Eugene A. Tan.

Juan Reynaldo, Jr. for respondent LTDG Godofredo Morcullo.

SYNOPSIS

Respondent Filipinas Carriers (Filcar) filed a complaint for collection of a sum of money, enforcement of lien and damages with the Court of First Instance of Manila (Manila Court) against AB Charles Thorburn Co. which chartered its ship MV San Vicente and Abdullah Baroom impleaded as its agent. Filcar alleged that Thorburn failed to pay the charter hire and that the charter party has expired but the vessel has not yet discharged the cargoes. The Manila Court allowed Filcar to sell the cargoes to satisfy its claim against Thorburn in an Order dated April 18, 1977, and approved the deed of absolute sale of the cargo in July 1977. On August 15 1977, petitioner, law firm filed with the Manila Court a special appearance for Baroom contesting the court's jurisdictions over its client's person and property. However, petitioner later filed a manifestation and motion that it be allowed to withdraw from the case and that a charging lien be recorded against the cargoes of Baroom on board MV San Vicente for unpaid professional fees and reimbursement of expenses, pending which petitioner also filed with the Court of First Instance of Rizal a complaint for the recovery of professional fees with a prayer for a writ of preliminary attachment. The writ was granted on February 28, 1978. Meanwhile the Manila Court approved the sale of the cargoes to Apollo Kokin Trading Co., Ltd. on August 25, 1978. On September 8, 1978 FILCAR filed with the Rizal Court an urgent omnibus motion to be allowed to appear and dismiss the case and to lift the writ of attachment and set aside the order to auction the cargo attaching the order of the Manila Court approving the sale of the same to Apollo. Hence, petitioner filed the instant petition assailing the approval of the sale of the cargo to Apollo considering that the subject cargo had been earlier attached by the Rizal Court.

The Supreme Court held that a court which has the possession and control of property or funds involved in litigation may exercise exclusive jurisdiction over the same and that another court of concurrent or coordinate jurisdiction cannot interfere with such possession and control.

Petition dismissed.

SYLLABUS

1.REMEDIAL LAW; JURISDICTION; ACTION FOR ADMIRALTY; FALLS WITHIN THE EXCLUSIVE AND ORIGINAL JURISDICTION OF COURT OF FIRST INSTANCE. — An action based upon an oral contract of transportation of goods by water is an action in admiralty which comes under the original and exclusive jurisdiction of the Court of First Instance irrespective of the value of the cargo (Negre v. Cabahug Shipping & Co., 16 SCRA 655).

2.ID.; ID.; WHERE THE PROCEEDINGS IS QUASI IN REM, JURISDICTION OVER THE PERSON OF THE DEFENDANT IS NOT ESSENTIAL; CASE AT BAR. — Baroom was a non-resident alien and he was

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beyond the reach of the court's legal processes. But since the action is brought principally for the enforcement of maritime lien against the property of the defendants who to failed to pay the charter hire fee, and therefore the same is in the nature and character of a proceeding quasi in rem, jurisdiction over defendants Baroom is not essential. An action quasi in rem has been defined as "an action between parties where the direct object is to reach and dispose of property owned by them or of some interest therein." As such the properties allegedly owned by him are primarily made liable.

3.ID.; ID.; FILING OF ANSWER WITH COUNTERCLAIM EQUIVALENT TO SUBMITTING TO THE JURISDICTION OF COURT; CASE AT BAR. — Where defendant Baroom filed later, aside from a motion to dismiss, an answer with counterclaim praying that plaintiff be directed to deliver the cargoes of defendant Baroom to Jeddah and to pay damages, etc. and a crossclaim against Sierra Madre, defendant abandoned any question on jurisdiction over the person and submitted himself to the jurisdiction of the court (Tenchavez vs. Escaño, 17 SCRA 685).

4.ID.; ID.; ID.; RATIONALE. — In the aforecited case, the Court explains that the rule is such because it cannot look with favor upon a party adopting not merely inconsistent, but actually contradictory, positions in one and the same was, claiming that a court has no jurisdiction to render judgment against it, but has such jurisdiction to give a decision in its favor."

5.ID.; CIVIL ACTIONS; JURISDICTION OVER PERSONS; WHERE DEFENDANT VOLUNTARILY APPEARS, ACTION BECOMES PERSONAL. — If the defendant voluntarily appears, the actions becomes as to him a personal actions and is conducted as such. Even then, the court does not lose its jurisdiction over the res, assuming that it has indeed jurisdiction over the res. The res still remains under its control and disposition.

6.ID.; ID.; JURISDICTION OVER THE RES; WHERE PROPERTY IS BURDENED BY LIEN; WRIT OF' ATTACHMENT NOT NECESSARY TO OBTAIN JURISDICTION OVER THE PROPERTY; RATIONALE.— As regards jurisdiction over the res, We hold that respondent acquires jurisdiction over it. Where a property is burdened by a lien, a writ of attachment is no longer necessary in order that jurisdiction over the property may be obtained by the court. The reason for the rule is obvious. An attachment proceeding is for the purpose of creating a lien on the property to serve as security for the payment of the creditors' claim. Hence, where a lien already exists, as in the case, a maritime lien, the same is already equivalent to an attachment. Moreover, since the property subject of the actions for the enforcement of the maritime liens was already in the possession of private respondent, there is no need for seizure for the court to obtain jurisdiction over the res.

7.ID.; ID.; ID.; A PROPERTY UNDER CUSTODIA LEGIS; EXTENT OF COURT'S JURISDICTION; CASE AT BAR. — Indeed, petitioner should have maintained its action in respondent's court. After all, a court which has in its possession, control or equivalent dominion, property or funds involved in litigation may exercise exclusive jurisdiction over such property or funds to determine the rights therein, such as questions respecting the title, possession or control, management and disposition thereof and another court of concurrent or coordinate jurisdiction cannot interfere with such possession or control (21 C.J.S. 755-757). The rights to be determined by said court necessarily include the attorney's fees due to the lawyers who represented the parties.

8.ID.; SPECIAL CIVIL ACTIONS; CERTIORARI; ABUSE OF DISCRETION; ABSENCE THEREOF IN CASE AT BAR. — We find no abuse of discretion in issuing the questioned order of August 25, 1978. It could not be claimed that the act of respondent Judge in issuing the said order amounts to interference with the writ of attachment dated February 28, 1978 issued by Judge Pineda, for by the time the said writ was issued, respondent Judge had already control and dispositions of the case. The order of August 25, 1978 was but an implementation of the earlier order of April 28, 1977 directing the sale of the cargoes on the ground of extreme necessity as the cargoes as

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found by respondent Judge upon ocular inspection were in danger of deteriorating and losing their market value and the vessel was also in danger of sinking. By then, respondent Judge had also issued the order dated July 19, 1977 approving a Deed of Sale of subject cargoes.

9.LEGAL AND JUDICIAL ETHICS; ATTORNEY'S FEES; CHARGING LIENS APPLY ONLY TO FUNDS OR DOCUMENTS WHICH LAWFULLY COME TO THE POSSESSION OF COUNSEL. — Under Section 37 of Rule 138 of the Rules of Court, the liens for attorney's fees and expenses apply only on the funds or documents of clients which lawfully come to the possession of the counsel (called retaining lien and to all judgments secured by the counsel (called charging lien).

10.REMEDIAL LAW; SPECIAL CIVIL ACTIONS; CONTEMPT; OMISSION OF MATERIAL FACTS; TOLERATED; CASE AT BAR. — We also dismiss the respondent's charge against petitioner for direct contempt for allegedly omitting material facts vital to the full appreciation of this Court. In De Midgely vs. Fernandos, 64 SCRA 31, this Court ruled that such tactic is generally tolerated because understandably lawyers are apt to slant the presentation of their client's case so that they would have favorable judgments. "Courts are not deceived by the exaggerations and distortions in a counsel's lopsided submission of his client's case especially where, as in this case, the alert opposing counsel calls the court's attention to that fact." Indeed, "contempt of court presupposes a contumacious attitude, a flouting of arrogant belligerence, a defiance of the court (citing Matutina vs. Judge Buston, et al,, 119 Phil. 140, 142). It is an offense against the authority and dignity of the court.

D E C I S I O N

DE CASTRO, J p:

In this petition for certiorari and prohibition with preliminary injunction, petitioner seeks the annulment of the order of respondent Judge of the Court of First Instance of Manila in Civil Case No. 105048 dated August 25, 1978 which approved the sale of the subject cargo and prays instead that the writ of preliminary attachment over the same property issued by Hon. Gregorio Pineda of the Court of First Instance of Rizal in Civil Case No. 28710 be allowed to remain in force.

It appears that on October 22, 1976, respondent Filipinas Carriers, hereinafter referred to as Filcar, filed a complaint for sum of money, enforcement of lien and damages with the Court of First Instance of Manila, and the same was assigned to Branch X, which was presided by respondent Judge, against AB Charles Thorburn & Co., through its receiver Sjoegren and Winstrand; Estero Shipping and Trading; Bank of Melli of Iran, Jeddah Branch; Perstorp AB; Skogshgarnas Industries; Ekman and Company AB; and Abdullah Baroom. In the complaint which was docketed as Civil Case No. 105048, Filcar alleged that it is the disponent owner of a vessel, MV San Vicente, which was duly registered with the Republic of the Philippines; that on April 2, 1976, defendant Carles Thorburn & Co. chartered said vessel by time charter for two or three months for a voyage from Sweden to Jeddah, Saudi Arabia at three thousand two hundred US dollars (US $3,200.00) a day, that Abdullah Baroom was impleaded as defendant for being the agent of Charles Thorburn & Co. at Jeddah and Sjoegren and Winstrand of Sweden for being the receiver of Charles Thorburn & Co.; that the vessel left Sweden with construction materials as cargoes belonging to the following shippers and consignees, namely, defendants Bank of Melli of Iran, Jeddah Branch; the National Commercial Bank, Jeddah Branch; Perstorp AB of Perstorp, Sweden; Skogshgarnas Industries of Sweden; Ekman and Company of Sweden; that after the second month, Charles Thorburn failed to pay the daily hire; that the vessel has been in Jeddah since May 19, 1976 and is now in international waters; that in view of Thorburn's failure to pay

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the charter hire, it had struck a lien through the vessel's captain; that the charter party has expired but the vessel has not yet discharged the cargoes due to inadequate port facilities and failure of the shippers, consignees and charterer to pay the charter hire; that Filcar demanded from Charles Thorburn the payment of the charter hire but Thorburn failed to pay and instead declared bankruptcy and is now under receivership in Sweden; that on demand, Baroom, the agent of Thorburn in Jeddah, and the consignees and shippers refused to pay; that consequently, Filcar was forced to exercise its lien on the cargoes consistent with Clause 18 of the Charter Party, notice of which was sent to defendants. The plaintiff thus prayed, among others, that the defendants pay the daily charter hire from the time they were in arrears until payment is made and that the Court allow the sale of the cargoes to satisfy its claims.

On November 25, 1976, Sierra Madre Wood Industries, Inc., hereinafter called Sierra Madre, the alleged owner, end-user and operator of MV San Vicente filed a motion to intervene in the Court of First Instance of Manila (Civil Case No. 105048) for the purpose of enforcing its lien over the cargo, claiming that it had chartered the vessel to Filcar for six months renewable every six months at agreed charter hire fee (US $825,000.00 per year). Respondent Judge allowed the intervention of Sierra Madre as plaintiff-intervenor.

On December 2, 1976, Filcar filed an extra-parte motion to sell the goods subject of hen, alleging among others, that the MV San Vicente had arrived in the Philippines, and was due for dry-docking and needed urgent repairs; and that the goods subject of its lien were in danger of deteriorating and losing their market value and if the goods were not sold immediately, the plaintiff would have to pay a staggering amount for warehousing so that the value of the goods would not even be enough to pay for warehousing expenses.

Thereafter, respondent Judge conducted hearings in Civil Case No. 105048 and an ocular inspection of the vessel. On April 18, 1977, respondent Judge, convinced that the vessel as well as the cargoes were in a very bad condition, issued an order, the dispositive portion of which reads:

"WHEREFORE, in view of all the above and due to the condition of the vessel and/or its cargo, while we are not convinced as asserted that Section 17, Rule 14 and 15 of the Rules of Court, do not apply, for we still believe that one of the four modes of service must at least be observed, yet on the ground of extreme necessity, this Court believes that somehow, somebody must act boldly in order to protect the interest of parties and of the owner of the vessel which is believed to be the government of the Philippines. On the ground of extreme necessity and partly by virtue of the provisions of Rule 57, Section 11, the cargo on board the MV San Vicente, is ordered sold privately, so that the vessel may immediately be sent for drydock, subject to the following conditions:

"1.That the negotiations for the sale of the cargo shall be the sole responsibility of plaintiff Filcar subject to the supervision by this Court and the intervention of plaintiff-intervenor, the Sierra Madre Wood Industries, Inc.;

"2.That the Court and the plaintiff-intervenor be fully informed regarding the progress of the negotiations and that the sale shall not be finalized without first securing the approval of this Court as to the selling price;

"3.The proceeds of the sale shall be deposited with a banking institution as approved by this Court and shall be disposed of only upon order of this Court, subject to the first lien of plaintiff-intervenor; and

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"4.Defendant AB Charles Thorburn & Co., etc. shall be notified of the Order of this Court together with a copy of the amended complaint and the complaint in intervention, thru the Department of Foreign Affairs, and the Philippine Embassy at Jeddah, Saudi Arabia. Proof of Service shall be submitted to this Court. After such time afforded the defendant, in order to enable them to answer or appear in this Court or make any claim whatsoever, and still they fail to make any manifestation, hearing of this case shall resume regarding the final disposition of the proceeds to all concerned."

On June 27, 1977, respondent Judge approved tentatively the sale of the cargo to Bengzon's Industries. This Order was followed by another dated July 19, 1977, approving the Deed of Absolute Sale of the cargo. 1

On August 15, 1977, petitioner law firm filed with respondent Judge a special appearance for defendant Ahmed Baroom contesting the Court's jurisdiction over Baroom's person and property and a Motion to Dismiss on the ground that the Court had not acquired jurisdiction over Baroom's 'person or property aboard the MV San Vicente." 2

On August 29, 1977, respondent Judge issued an Order directing petitioner law firm to show on or before September 20, 1977 a written authorization signed by its client, Baroom, "since the latter is a foreigner." 3

On November 15, 1977, petitioner, as Baroom's counsel, filed an answer with compulsory counterclaim, claiming that defendant Baroom is not an agent of Charles Thorburn since the cargoes belong to him, and denying the validity of plaintiff's lien over the cargo. Petitioner reiterates the defense that plaintiff's action being in personam, involving defendant who is not a resident within the territorial jurisdiction of the Court, and there is no showing in the records that the provisions of Section 17, Rule 14 in relation to Section 1, Rule 57, of the Rules of Court have been complied with to convert the action in rem, the Court had no jurisdiction over the case. Baroom, through petitioner, prayed that plaintiff be directed to deliver the cargoes to Jeddah, pay damages corresponding to the full value of the goods and to the lost income and profits he could have realized had plaintiff delivered the cargo to him. Baroom, likewise, filed a cross-claim against Sierra Madre, plaintiff-intervenor.  prLL

On January 23, 1978, petitioner filed with respondent Judge a manifestation and motion that it be "allowed to withdraw from this case and charging lien be recorded against the properties of Mr. Baroom now aboard MV San Vicente for unpaid professional fees and reimbursement expenses." 4

Thereafter, on February 17, 1978, petitioner filed before the Court of First Instance of Rizal a complaint with a prayer for a writ of preliminary attachment for the recovery of professional fees and reimbursement of expenses against Baroom whom it alleged to have represented in Civil Case No. 105048, CFI, Manila. The case was docketed as Civil Case No. 28710 and the same was assigned to Branch XXI presided over by Judge Gregorio C. Pineda.

By virtue of the order dated February 28, 1978 issued by Judge Pineda in the new case, petitioner obtained a writ of preliminary attachment against Baroom's alleged cargoes which is the subject matter in Civil Case No. 105048.

Meanwhile, in Civil Case No. 105048, on August 2, 1978, respondent Judge gave Attys. Quasha and Valmonte ten (10) days from receipt of order within which to explain why they should not be held in contempt of court for filing a case entitled "Quasha Asperilla Ancheta Valmonte Peña and Marcos vs. Al-Sayed Abdullah Mohammed Baroom" docketed as Civil Case No. 28710 in the Court of First Instance of Rizal, Branch XXI, where they obtained a writ of preliminary attachment over

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the cargoes, which they knew to be subject matter of Civil Case No. 105048 pending before his sala." 5 A compliance with said order was filed on August 24, 1978, with petitioner alleging that their cause of action against Baroom was for payment of professional fees and reimbursement of expenses while Case No. 105048 before Judge Juan was for alleged unpaid charter hire fees.

On August 25, 1978, respondent Judge issued an order approving the sale of the cargo in question to Apollo Kokin Trading Co., Ltd. In accordance with the earlier order of April 28, 1977, respondent Judge directed the deposit of the sale proceeds with a banking institution to be approved by the Court and its disposition only on orders of the Court. 6

On September 8, 1978, Filcar filed with the Court of First Instance of Rizal an urgent omnibus motion to be allowed to appear and to dismiss the case and to lift the writ of preliminary attachment and set aside the order to auction the cargo, attaching thereto the order of respondent Judge dated August 25, 1978, approving the sale in favor of Apollo Kokin Trading Co. Ltd. of the subject cargo, the proceeds of which after deducting all expenses shall be deposited with the court.

Thus, petitioner, on October 23, 1978, filed before this Court the instant petition. Petitioner assails the order of August 25, 1978, not the earlier order of April 28, 1977 approving the sale in favor of Apollo Kokin Trading Co., Ltd. of the questioned cargo for having been issued in grave abuse of discretion considering that subject cargo was allegedly earlier attached by the Court of First Instance of Rizal.

Without giving due course to the petition and pending the filing of comments by respondents, this Court issued on October 24, 1978 a temporary restraining order,

"enjoining respondents to immediately cease and desist from taking, unloading, transferring, conveying, transporting or disposing of the cargoes or any part thereof aboard the MC San Vicente and Dong Myung, * or from taking the cargoes away, subject matter of Civil Case No. 105048 entitled `Filipinas Carriers, Inc. vs. AB Charles Thorburn & Co., et al.' of the Court of First Instance of Manila, Branch X." 7

On October 30, 1978, petitioner filed a manifestation and motion informing this Court that notwithstanding the restraining order, the MV Don Myung, with the cargo aboard left surreptitiously at midnight of October 24, 1978 without the assistance of any pilot in violation of Harbor rules. The goods were then allegedly sold for US $220,200.43 under irrevocable letters of credit issued by the Fuji Bank of Osaka, Japan. Petitioner, thus, prayed that several persons, namely, Mr. Federico Tabora, Jr., President of Filipinas Carriers, Inc., Mr. Gregorio Gatchalian, allegedly operations manager of the American Steamship Agencies, Inc. being the agent representing the MV Dong Myung, Lt. JG Godofredo Orcullo of the Operations Center and Seaman 1st Class Avelino Lontoc of the Philippine Coast Guard be cited for contempt.

In the meanwhile, a compromise agreement dated October 16, 1978 and filed on November 2, 1978 wherein Filcar assigned its interests and rights in the proceeds of the sale of the subject cargoes to Sierra Madre which the latter accepted was approved by the respondent court in its decision of November 3, 1978. An amended petition was thus filed in this Court impleading Sierra Madre as partly respondent in this case with prayer that a writ of garnishment be issued on the proceeds of the sale of the cargoes which are in the possession of Sierra Madre, and an order be issued directing Sierra Madre and all those to whom such proceeds may subsequently be reassigned to deliver to petitioner such portion of the proceeds of the sale as would satisfy the attorney's lien in the interest of justice.

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Coming back to the omnibus motion of Filcar for the lifting of the preliminary attachment issued by the Court of First Instance of Rizal, the said court on December 7, 1978 dismissed petitioner's case and lifted the preliminary attachment issued therein. Upon motion for reconsideration dated April 7, 1979, the said preliminary attachment was reinstated by the Court of First Instance of Rizal in its order dated July 5, 1979. 8

After several pleadings were filed in this Court, We gave due course to the petition. 9

Petitioner contends that respondent court did not acquire jurisdiction neither over any of the defendants as they have not voluntarily submitted themselves to the jurisdiction of respondent court, nor over the res, since there had been no seizure of the property under a legal process, as by a writ of attachment or other process of similar effect. The instant case is allegedly neither a proceeding in rem as would place the property under its potential power citing the leading case of Banco Español v. Palanca 10 which held:

"Jurisdiction over the property which is the subject of litigation may result either from a seizure of the property under legal process, whereby it is brought into the actual custody of the law, or it may result from the institution of legal proceedings wherein under special provisions of law, the power of the court over the property is recognized and made effective. In the latter case the property, though at all times within the potential power of the court, may never be taken into actual custody at all. An illustration of the jurisdiction acquired by actual seizure is found in attachment proceedings, where the property is seized at the beginning of the action, or some subsequent stage of its progress and held to abide the final event of the litigation. An illustration of what we term potential jurisdiction over the res is found in the proceeding to register the title of land under our system for the registration of land. Here the court, without taking actual physical control over the property assumes, at the instance of some person claiming to be the owner, to exercise a jurisdiction in rem over the property end to adjudicate the title in favor of the petitioner against all the world."

Claiming that it was the Court of First Instance of Pasig that first acquired jurisdiction over the res to the exclusion of respondent court, petitioner insists that the latter court's act is undue interference which cannot be countenanced.

There is no pretense that respondent court has jurisdiction over the cause of action. It is much too obvious to merit a fuller discussion. Suffice it to say that an action based upon an oral contract of transportation of goods by water is an action in admiralty which comes under the original and exclusive jurisdiction of the Court of First Instance irrespective of the value of the cargo. 11

As to the person of Baroom, it is to be conceded that at the initial stage of the proceeding in the Court of First Instance of Manila prior to the issuance of the order of April 28, 1977 directing the sale of the property and petitioner's filing of various pleadings, said court did not have jurisdiction over Baroom. Baroom was a non-resident alien and he was beyond the reach of the court's legal processes. But since the action is brought principally for the enforcement of maritime lien against the property of defendants who failed to pay the charter hire fee, and therefore the same is in the nature and character of a proceeding quasi in rem, jurisdiction over defendant Baroom is not essential. An action quasi in rem has been defined as "an action between parties where the direct object is to reach and dispose of property owned by them or of some interest therein." As such the properties allegedly owned by him are primarily made liable. In elucidating the characteristic of a proceeding where a non-resident defendant fails to appear, this Court in the aforecited leading case of Banco Español Filipino v. Palanca said:  LibLex

"If however, the defendant is a non-resident and, remaining beyond the range of the personal process of the court, refuses to come in voluntarily, the court never acquires

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jurisdiction over the person at all. Here the property itself is in fact the sole thing which is impleaded and is the responsible object which is the subject of the exercise of judicial power. It follows that the jurisdiction of the court in such case is based exclusively on the power which, under the law, it possesses over the property; and any discussion relative to the jurisdiction of the court over the person of the defendant is entirely apart from the case.

The foregoing ruling was applied in Mabanag vs. Gallimore: 12

"As a general rule, when the defendant is not residing and is not found in the Philippines, the Philippine courts cannot try any case against him because of impossibility of acquiring jurisdiction over his person, unless he voluntarily appears in court. But when the action . . . is intended to seize or dispose of any property, real or personal, of the defendant, located in the Philippines, it may validly be tried by the Philippine courts, for then, they have jurisdiction over the res, i.e. . . . the property of the defendant, and their jurisdiction over the person of the non-resident is not essential . . . " (Citing I Moran's Comments on the Rules of Court, 2d Ed., 105).

At any rate, defendant Baroom filed later, aside from a motion to dismiss, an answer with counterclaim praying that plaintiff be directed to deliver the cargoes of defendant Baroom to Jeddah and to pay damages, etc. and a crossclaim against Sierra Madre, thereby abandoning any question on jurisdiction over the person and submitting himself to the jurisdiction of the court. In Tenchavez vs. Escaño, 13 this Court quoted with approval the ruling in Merchant's Heat and Light Co. vs. Clow & Sons, 204 U.S. 286, 51 Law Ed. 488:

"We assume that the defendant lost no rights by pleading to the merits, as required, after saving its rights. Harkness vs. Hyde, 98 U.S. 476, 25 L. ed. 237; Southern P. Co. vs. Denton, 146 U.S. 202, 36 L. ed. 943, 13 Sup. Ct. Rep. 44. But by setting up its counterclaim the defendant became a plaintiff in its turn, invoked the jurisdiction of the court in same action, and, by invoking submitted to it. It is true that the counterclaim seems to have arisen wholly out of the same transaction that the plaintiff sued upon, and so to have been in recoupment rather than in set-off proper. But. even at common law, since the doctrine has been developed, as demand in recoupment is recognized as a cross demand, as distinguished from a defense. Therefore, although there has been a difference of opinion as to whether a defendant, by pleading it, is concluded by the judgment from bringing a subsequent suit for the residue of his claim, a judgment in his favor being impossible at common law, the authorities agree that he is not concluded by the judgment if he does not plead his cross demand, and that whether he shall do so or not is left wholly to his choice. Davis vs. Hedges, L.R. 6 Q.B. 687; Mondel vs. Steel, 8 Mees & W. 858, 872; O'Connor vs. Varney, 10 Gray, 231. This single fact shows that the defendant, if he elects to sue upon his claim in the action against him, assumes the position of an actor and must take the consequence. The right to do so is of modern growth, and is merely a convenience that saves bringing another suit, not a necessity of the defense."

In the aforecited case, the Court explains that the rule is such because "it cannot look with favor upon a party adopting not merely inconsistent, but actually contradictory, positions in one and the same suit, claiming that a court has no jurisdiction to render judgment against it, but has such jurisdiction to give a decision its favor." 14

It may be noted that if the defendant voluntarily appears, the action becomes as to him a personal action and is conducted as such. Even then, the court does not lose its jurisdiction over the res, assuming that it has indeed jurisdiction over the res. The res still remains under its control and disposition.

As regards jurisdiction over the res, We hold that respondent acquires jurisdiction over it. Where a property is burdened by a lien, a writ of attachment is no longer necessary in order that

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jurisdiction over the property may be obtained by the court. In the same cited case by petitioner, in the Banco Español case, it was clarified:

"In an ordinary attachment proceeding, if the defendant is not personally served, the preliminary seizure is to be considered necessary in order to confer jurisdiction upon the court. In this cast the lien on the property acquired by seizure; and the purpose of the proceeding is to subject the property to that lien. If a lien already exists, whether created by mortgage, contract, or statute, the preliminary seizure is not necessary, and the court proceeds to enforce such lien in the manner provided by law precisely as though the property had been seized upon attachment. (Roller v. Holly, 176 U.S. 398, 405; 44 L. ed. 520)."

The reason for the rule is obvious. An attachment proceeding is for the purpose of creating a lien on the property to serve as security for the payment of the creditors' claim. Hence, where a lien already exists, as in this case a maritime lien, the same is already equivalent to an attachment. Moreover, since the property subject of the action for the enforcement of the maritime liens was already in the possession of private respondent, there is no need for seizure for the court to obtain jurisdiction over the res.

"Where a party in actual possession of the res subject to the lien is before the court, the res is within the jurisdiction of the court for the enforcement of the hen. A suit may be maintained to foreclose a lien on property within the jurisdiction of the court, although some interest or claim therein is held by a non-resident." 15

The other argument posed by petitioner to challenge respondents' right over the property is that there is no privity of contract between Baroom and respondents. It avers that Baroom is not merely the agent of Thorburn but himself the owner of some of the cargoes and whose contract to ship the same is with sub-charterer Thorburn. It avers further that neither Thorburn could attach a lien on the property since Baroom had allegedly paid fully for the shipment even before the vessel sailed, as evidenced by the clean freight pre-paid bills of lading.

Claiming right over the cargo to answer for the unpaid professional fees, petitioner submits to this Court the required written authority from Baroom claiming that due to snag in communication and unreliability of the mailing system, it did not receive the documents from its client on time.

The foregoing entails determination of facts. It would be highly irregular if this Court would have to resolve those questions, this Court not being a trier of facts. The several documents mentioned by petitioner and attached to its pleadings before this Court were never presented before the lower court. After Baroom had abandoned his defense which created the presumption that he had no defense, that he is not the owner of the cargo, petitioner should have pursued the same argument before respondent court in claiming the alleged professional fee. This is in accordance with Article 1177 of the New Civil Code which provides:

"Art. 1177.The creditors having pursued the property in possession of the debtor to satisfy their claims may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person, they may also impugn the acts which the debtor may have done to defraud them."

Indeed, petitioner should have maintained its action in respondent's court. After all, a court which has in its possession, control or equivalent dominion, property or funds involved in litigation may exercise exclusive jurisdiction over such property or funds to determine the rights therein, such as questions respecting the title, possession or control, management and

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disposition thereof and another court of concurrent or coordinate jurisdiction cannot interfere with such possession or control.16 The rights to be determined by said court necessarily include the attorney's fees due to the lawyers who represented the parties. Significantly, the lower court which undoubtedly has in its favor the presumption of regularity and which was never restrained by this Court from proceeding with the case issued an order dated January 25, 1979 17 making the following findings of fact:

1.Thorburn fails to pay the freight so that respondent Filcar had the right to impose its lien on the cargo including sub-freights.

Paragraph 16 of the time charter contract provides:

"That the owners shall have a lien upon all cargoes and all sub-freights for any amounts due under this Charter including General Average contributions and the charterers to have a lien on the ship for all monies paid in advance and not earned, and any overpaid hire or excess deposit to be returned at once. Charterers will not suffer nor permit to be continued, any lien or encumbrance incurred by them or their agents, which might have priority over the title and interest of the owners of the vessel."

2.Thorburn executed a liner term contract with Baroom who was playing the double role of agent of said Thorburn and agent of three consignee banks in Jeddah.

3.Baroom applied to Filcar to be its agent, but when it was discovered that he was the agent of Charles Thorburn and the three (3) consignee banks, the application was rejected due to conflict of interest.

4.The pre-paid freight representation of Baroom is false because the condition of the L/C issued by the 3 consignee banks provides a CIF arrangement which means payment of the goods, insurance and freight can only be made upon physical delivery of the goods in Jeddah.

5.Baroom intervened in the case (before respondent court) using the Quasha law office. He later withdrew upon knowing he has no defense. In fact, he did not even give Quasha written authority to appear for him as his lawyer.

6.The court of respondent Judge "has jurisdiction over the person of defendant and subject cargo of the vessel."

7.The Quasha law office is not entitled to any claim for attorney's lien.

Prescinding from the foregoing, We find no abuse of discretion in issuing the questioned order of August 25, 1978, and therefore the instant petition should be dismissed. It could not be claimed that the act of respondent Judge in issuing the said order amounts to interference with the writ of attachment dated February 28, 1978 issued by Judge Pineda, for by the time the said writ was issued, respondent Judge had already control and disposition of the case. The order of August 25, 1978 was but an implementation of the earlier order of April 28, 1977 directing the sale of the cargoes on the ground of extreme necessity as the cargoes as found by respondent Judge upon ocular inspection were in danger of deteriorating and losing their market value and the vessel was also in danger of sinking By then, respondent Judge had also issued the order dated July 19, 1977 approving a Deed of Sale of subject cargoes.

It should be noted that at the time petitioner filed the action before Judge Pineda, it has already submitted itself to the jurisdiction of respondent court and in fact its "charging lien" which is the same cause of action before Judge Pineda was still pending before respondent court. Pending

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also before respondent Judge were petitioner's answer with counterclaim, cross claim, motion to dismiss and motion to withdraw from the case.  LLjur

Petitioner may not enforce its attorney's hen, which accordingly is based on Section 37 of Rule 138 which provides:

"Sec. 37.Attorney's lien. — An attorney shall have a lien upon the funds, documents and papers of his client which have lawfully come into his possession and may retain the same until his lawful fees and disbursements have been paid and may apply such funds to the satisfaction thereof. He shall also have a lien to the same extent upon all judgments for the payment of money, and executions issued in pursuance of such judgments, which he has secured in a litigation of his client, from and after the time when he shall have caused a statement of his claim of such lien to be entered upon the records of the court rendering such judgment, or issuing such execution, and shall have caused written notice thereof to be delivered to his client and to the adverse party; and he shall have the same right and power over such judgments and executions as his client would have to enforce his lien and secure the payment of his just fees and disbursement."

Based on the foregoing provision, the liens for attorney's fees and expenses apply only on the funds or documents of clients which lawfully come to the possession of the counsel (called retaining lien) and to all judgments secured by the counsel (called charging lien). In his manifestation and motion before respondent Judge, petitioner is claiming for his charging lien. But it should be noted that at the time of its filing, the orders of April 27, 1977 ordering the sale of the cargoes and July 19, 1977 approving the Deed of Sale of cargoes were already in existence and both were in fact in favor of private respondent. It is curious to note that petitioner never questioned said orders on appeal or by a special civil action. Petitioner's client in fact even abandoned its case. Hence, having no favorable judgment that could be anticipated, the charging lien has no leg to stand on. Perhaps because it was aware of its predicament that petitioner filed an independent action for recovery of its professional fees and for reimbursement of expenses which would have been proper, except that the ownership of the property sought to be attached was questionable and the same was already sold by respondent court. But just as We had said before, petitioner should have filed its claim for professional fees in respondent's court for said court has the exclusive jurisdiction to determine the real owner of the cargoes. We hasten to add, however, that the action should not be for a charging lien, but a simple complaint in intervention for recovery of professional services and reimbursement of expenses, thus avoiding multiplicity of suits.

On October 24, 1978, We issued a temporary restraining order enjoining the disposition or unloading of the cargoes. It turned out, however, that before the said order could be served upon the private respondents, all the cargoes subject of the petition had been loaded into the M.V. Dong Myung, of which this Court has no jurisdiction being a foreign vessel. When the vessel sailed and the cargoes eventually sold, everything became fait accompli and the case before Us moot and academic.

Petitioner prays for the garnishment of the proceeds, but to allow the same, there must first be a determination of the ownership of the cargo. Again, We say We are not in a position to do so. Petitioner failed to file motion for reconsideration of the order of August 25, 1978 approving the sale of the cargo, and it abandoned its own case before respondent Judge. The result of its negligence in allowing considerable period to lapse before claiming right over the cargo, and resorting to injunctive relief must be borne by it. Petitioner is not entitled to any relief and the instant petition must be dismissed. We shall also dismiss petitioner's charge of contempt against respondent since as We said before, before the temporary restraining order could be served everything was already fait accompli.

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Likewise, We also dismiss the respondents' charge against petitioner for direct contempt for allegedly omitting material facts vital to the full appreciation of this Court. In De Midgely vs. Fernandos, 18 this Court ruled that such tactic is generally tolerated because understandably lawyers are apt to slant the presentation of their clients' case so that they would have favorable judgments. "Courts are not deceived by the exaggerations and distortions in a counsel's lopsided submission of his client's case especially where, as in this case, the alert opposing counsel calls the court's attention to that fact."

Indeed, "contempt of court presupposes a contumacious attitude, a flouting of arrogant belligerence, a defiance of the court. 19 It is an offense against the authority and dignity of the court. LLjur

WHEREFORE, the petition is hereby dismissed.

SO ORDERED.

Makasiar (Chairman), Aquino, Concepcion, Jr., and Guerrero, JJ., concur.

Abad Santos and Escolin, JJ., concur in the result.

[G.R. Nos. 111202-05. January 31, 2006.]

COMMISSIONER OF CUSTOMS, petitioner, vs. THE COURT OF APPEALS; Honorable ARSENIO M. GONONG, Presiding Judge Regional Trial Court, Manila, Branch 8; Honorable MAURO T. ALLARDE, Presiding Judge, REGIONAL TRIAL COURT Kalookan City, Branch 123; AMADO SEVILLA and ANTONIO VELASCO, Special Sheriffs of Manila; JOVENAL SALAYON, Special Sheriff of Kalookan City, DIONISIO J. CAMANGON, Ex-Deputy Sheriff of Manila and CESAR S. URBINO, SR., doing business under the name and style "Duraproof Services,", respondents.

D E C I S I O N

AZCUNA, J p:

These Petitions for Certiorari and Prohibition, with Prayers for a Writ of Preliminary Injunction and/or Temporary Restraining Order, are the culmination of several court cases wherein several resolutions and decisions are sought to be annulled. Petitioner Commissioner of Customs specifically assails the following:

A)Decision of the Regional Trial Court (RTC) of Manila dated February 18, 1991 in Civil Case No. 89-51451;

B)Order of the RTC of Kalookan dated May 28, 1991 in Special Civil Case No. C-234;

C)Resolution of the Court of Appeals (CA) dated March 6, 1992 in CA-G.R. SP No. 24669;

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D)Resolution of the CA dated August 6, 1992 in CA-G.R. SP No. 28387;

E)Resolution of the CA dated November 10, 1992 in CA-G.R. SP No. 29317;

F)Resolution of the CA dated May 31, 1993 in CA-G.R. No. CV-32746; and

G)Decision of the CA dated July 19, 1993 in the consolidated petitions of CA-G.R. SP Nos. 24669, 28387 and 29317.

Petitioner also seeks to prohibit the CA and the RTC of Kalookan 1 from further acting in CA-G.R. CV No. 32746 and Civil Case No. 234, respectively.

The whole controversy revolves around a vessel and its cargo. On January 7, 1989, the vessel M/V "Star Ace," coming from Singapore laden with cargo, entered the Port of San Fernando, La Union (SFLU) for needed repairs. The vessel and the cargo had an appraised value, at that time, of more or less Two Hundred Million Pesos (P200,000,000). When the Bureau of Customs later became suspicious that the vessel's real purpose in docking was to smuggle its cargo into the country, seizure proceedings were instituted under S.I. Nos. 02-89 and 03-89 and, subsequently, two Warrants of Seizure and Detention were issued for the vessel and its cargo.

Respondent Cesar S. Urbino, Sr., does not own the vessel or any of its cargo but claimed a preferred maritime lien under a Salvage Agreement dated June 8, 1989. To protect his claim, Urbino initially filed two motions in the seizure and detention cases: a Motion to Dismiss and a Motion to Lift Warrant of Seizure and Detention. 2Apparently not content with his administrative remedies, Urbino sought relief with the regular courts by filing a case for Prohibition, Mandamus and Damages before the RTC of SFLU 3 on July 26, 1989, seeking to restrain the District Collector of Customs from interfering with his salvage operation. The case was docketed as Civil Case No. 89-4267. On January 31, 1991 the RTC of SFLU dismissed the case for lack of jurisdiction because of the pending seizure and detention cases. Urbino then elevated the matter to the CA where it was docketed as CA-G.R. CV No. 32746. The Commissioner of Customs, in response, filed a Motion to Suspend Proceedings, advising the CA that it intends to question the jurisdiction of the CA before this Court. The motion was denied on May 31, 1993. Hence, in this petition the Commissioner of Customs assails the Resolution "F" recited above and seeks to prohibit the CA from continuing to hear the case. ATCEIc

On January 9, 1990, while Civil Case No. 89-4267 was pending, Urbino filed another case for Certiorari and Mandamus with the RTC of Manila, presided by Judge Arsenio M. Gonong, 4 this time to enforce his maritime lien. Impleaded as defendants were the Commissioner of Customs, the District Collector of Customs, the owners of the vessel and cargo, Vlason Enterprises, Singkong Trading Company, Banco do Brazil, Dusit International Company Incorporated, Thai-Nam Enterprises Limited, Thai-United Trading Company Incorporated and Omega Sea Transport Company, and the vessel M/V "Star Ace." This case was docketed as Civil Case No. 89-51451. The Office of the Solicitor General filed a Motion to Dismiss on the ground that a similar case was pending with the RTC of SFLU. The Motion to Dismiss was granted on July 2, 1990, but only insofar as the Commissioner of Customs and the District Collector were concerned. The RTC of Manila proceeded to hear the case against the other parties and received evidence ex parte. The RTC of Manila later rendered a decision on February 18, 1991 finding in favor of Urbino (assailed Decision "A" recited above).

Thereafter, on March 13, 1991, a writ of execution was issued by the RTC of Manila. Respondent Camangon was appointed as Special Sheriff to execute the decision and he issued a notice of levy and sale against the vessel and its cargo. The Commissioner of Customs, upon learning of the notice of levy and sale, filed with the RTC of Manila a motion to recall the writ, but before it could be acted upon, Camangon had auctioned off the vessel and the cargo to Urbino for One

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Hundred and Twenty Million Pesos (P120,000,000). The following day, Judge Gonong issued an order commanding Sheriff Camangon to cease and desist from implementing the writ. Despite the order, Camangon issued a Certificate of Sale in favor of Urbino. A week later, Judge Gonong issued another order recalling the writ of execution. Both cease and desist and recall orders of Judge Gonong were elevated by Urbino to the CA on April 12, 1991 where it was docketed as CA-G.R. SP No. 24669. On April 26, 1991, the CA issued a Temporary Restraining Order (TRO) enjoining the RTC of Manila from enforcing its cease and desist and recall orders. The TRO was eventually substituted by a writ of preliminary injunction. A motion to lift the injunction was filed by the Commissioner of Customs but it was denied. Hence, in this petition the Commissioner of Customs assails Resolution "C" recited above.

On May 8, 1991, Urbino attempted to enforce the RTC of Manila's decision and the Certificate of Sale against the Bureau of Customs by filing a third case, a Petition for Certiorari, Prohibition and Mandamus with the RTC of Kaloocan. 5 The case was docketed as Civil Case No. 234. On May 28, 1991, the RTC of Kaloocan ordered the issuance of a writ of preliminary injunction to enjoin the Philippine Ports Authority and the Bureau of Customs from interfering with the relocation of the vessel and its cargo by Urbino (assailed Order "B" recited above).

Meanwhile, on June 5, 1992, Camangon filed his Sheriff's Return with the Clerk of Court. On June 26, 1992, the Executive Judge for the RTC of Manila, Judge Bernardo P. Pardo, 6 having been informed of the circumstances of the sale, issued an order nullifying the report and all proceedings taken in connection therewith. With this order Urbino filed his fourth case with the CA on July 15, 1992, a Petition for Certiorari, Prohibition and Mandamus against Judge Pardo. This became CA-G.R. SP No. 28387. The CA issued a Resolution on August 6, 1992 granting the TRO against the Executive Judge to enjoin the implementation of his June 26, 1992 Order. Hence, in this petition the Commissioner of Customs assails Resolution "D" recited above. TcADCI

Going back to the seizure and detention proceedings, the decision of the District Collector of Customs was to forfeit the vessel and cargo in favor of the Government. This decision was affirmed by the Commissioner of Customs. Three appeals were then filed with the Court of Tax Appeals (CTA) by different parties, excluding Urbino, who claimed an interest in the vessel and cargo. These three cases were docketed as CTA Case No. 4492, CTA Case No. 4494 and CTA Case No. 4500. Urbino filed his own case, CTA Case No. 4497, but it was dismissed for want of capacity to sue. He, however, was allowed to intervene in CTA Case No. 4500. On October 5, 1992, the CTA issued an order authorizing the Commissioner of Customs to assign customs police and guards around the vessel and to conduct an inventory of the cargo. In response, on November 3, 1992, Urbino filed a fifth Petition for Certiorari and Prohibition with the CA to assail the order as well as the jurisdiction of the Presiding Judge and Associate Judges of the CTA in the three cases. That case was docketed as CA G.R. SP No. 29317. On November 10, 1992, the CA issued a Resolution reminding the parties that the vessel is under the control of the appellate court in CA-G.R. SP No. 24669 (assailed Resolution "E" recited above).

CA-G.R. SP Nos. 24669, 28387 and 29317 were later consolidated and the CA issued a joint Decision in July 19, 1993 nullifying and setting aside: 1) the Order recalling the writ of execution by Judge Gonong of the RTC of Manila; 2) the Order of Executive Judge Pardo of the RTC of Manila nullifying the Sheriff's Report and all proceedings connected therewith; and 3) the October 19, 1993 Order of the CTA, on the ground of lack of jurisdiction. Hence, in these petitions, which have been consolidated, the Commissioner of Customs assails Decision "G" recited above.

For purposes of deciding these petitions, the assailed Decisions and Resolutions will be divided into three groups:

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1.The Resolution of the CA dated May 31, 1993 in CA-G.R. No. CV-32746 with the additional prayer to enjoin the CA from deciding the said case.

2.The Order of the RTC of Kalookan dated May 28, 1991 in Special Civil Case No. C-234 with the additional prayer to enjoin the RTC of Kalookan from proceeding with said case.

3.The Decision of the RTC of Manila dated February 18, 1991 in Civil Case No. 89-51451, the Resolutions of the CA dated March 6, 1992, August 6, 1992, November 10, 1992 and the Decision of the CA dated July 19, 1993 in the consolidated petitions CA-G.R. SP Nos. 24669, 28387 and 29317.

First Group

The Commissioner of Customs seeks to nullify the Resolution of the CA dated May 31, 1993 denying the Motion to Suspend Proceedings and to prohibit the CA from further proceeding in CA-G.R. No. CV-32746 for lack of jurisdiction. This issue can be easily disposed of as it appears that the petition has become moot and academic, with the CA having terminated CA-G.R. No. CV-32746 by rendering its Decision on May 13, 2002 upholding the dismissal of the case by the RTC of SFLU for lack of jurisdiction, a finding that sustains the position of the Commissioner of Customs. This decision became final and entry of judgment was made on June 14, 2002. 7

Second Group

The Court now proceeds to consider the Order granting an injunction dated May 28, 1991 in Civil Case No. C-234 issued by the RTC of Kalookan. The Commissioner of Customs seeks its nullification and to prohibit the RTC of Kalookan from further proceeding with the case.

The RTC of Kalookan issued the Order against the Philippine Ports Authority and Bureau of Customs solely on the basis of Urbino's alleged ownership over the vessel by virtue of his certificate of sale. By this the RTC of Kalookan committed a serious and reversible error in interfering with the jurisdiction of customs authorities and should have dismissed the petition outright. In Mison v. Natividad, 8 this Court held that the exclusive jurisdiction of the Collector of Customs cannot be interfered with by regular courts even upon allegations of ownership. cTIESD

To summarize the facts in that case, a warrant of seizure and detention was issued against therein plaintiff over a number of vehicles found in his residence for violation of customs laws. Plaintiff then filed a complaint before the RTC of Pampanga alleging that he is the registered owner of certain vehicles which the Bureau of Customs are threatening to seize and praying that the latter be enjoined from doing so. The RTC of Pampanga issued a TRO and eventually, thereafter, substituted it with a writ of preliminary injunction. This Court found that the proceedings conducted by the trial court were null and void as it had no jurisdiction over the res subject of the warrant of seizure and detention, holding that:

A warrant of seizure and detention having already been issued, presumably in the regular course of official duty, the Regional Trial Court of Pampanga was indisputably precluded from interfering in said proceedings. That in his complaint in Civil Case No. 8109 private respondent alleges ownership over several vehicles which are legally registered in his name, having paid all the taxes and corresponding licenses incident thereto, neither divests the Collector of Customs of such jurisdiction nor confers upon said trial court regular jurisdiction over the case. Ownership of goods or the legality of its acquisition can be raised as defenses in a seizure proceeding; if this were not so, the procedure carefully

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delineated by law for seizure and forfeiture cases may easily be thwarted and set to naught by scheming parties. Even the illegality of the warrant of seizure and detention cannot justify the trial court's interference with the Collector's jurisdiction. In the first place, there is a distinction between the existence of the Collector's power to issue it and the regularity of the proceeding taken under such power. In the second place, even if there be such an irregularity in the latter, the Regional Trial Court does not have the competence to review, modify or reverse whatever conclusions may result therefrom . . . .

The facts in this case are like those in that case. Urbino claimed to be the owner of the vessel and he sought to restrain the PPA and the Bureau of Customs from interfering with his rights as owner. His remedy, therefore, was not with the RTC but with the CTA where the seizure and detention cases are now pending and where he was already allowed to intervene.

Moreover, this Court, on numerous occasions, cautioned judges in their issuance of temporary restraining orders and writs of preliminary injunction against the Collector of Customs based on the principle enunciated in Mison v. Natividad and has issued Administrative Circular No. 7-99 to carry out this policy. 9 This Court again reminds all concerned that the rule is clear: the Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings and trial courts are precluded from assuming cognizance over such matters even through petitions for certiorari, prohibition or mandamus.

Third Group

The Decision of the RTC of Manila dated February 18, 1991 has the following dispositive portion:

WHEREFORE, IN VIEW OF THE FOREGOING, based on the allegations, prayer and evidence adduced, both testimonial and documentary, the Court is convinced, that, indeed, defendants/respondents are liable to plaintiff/petitioner in the amount prayed for in the petition for which [it] renders judgment as follows:

1.Respondent M/V Star Ace, represented by Capt. Nahum Rada, Relief Captain of the vessel and Omega Sea Transport Company, Inc., represented by Frank Cadacio is ordered to refrain from alienating or transfer[r]ing the vessel M/V Star Ace to any third parties;

2.Singko Trading Company to pay the following:

a.Taxes due the Government;

b.Salvage fees on the vessel in the amount of $1,000,000.00 based on the Lloyd's Standard Form of Salvage Agreement;

c.Preservation, securing and guarding fees on the vessel in the amount of $225,000.00;

d.Salaries of the crew from August 16, 1989 to December, in the amount of $43,000.00 and unpaid salaries from January 1990 up to the present;

e.Attorney's fees in the amount of P656,000.00;

3.Vlazon Enterprises to pay plaintiff in the amount of P3,000,000.00 for damages;

4.Banco do Brazil to pay plaintiff in the amount of $300,000.00 in damages; and finally,

5.Costs of suit.

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SO ORDERED.

On the other hand, the CA Resolutions are similar orders for the issuance of a writ of preliminary injunction to enjoin Judge Gonong and Judge Pardo from enforcing their recall and nullification orders and the CTA from exercising jurisdiction over the case, to preserve the status quo pending resolution of the three petitions.

Finally, the Decision of the CA dated July 19, 1993 disposed of all three petitions in favor of Urbino, and has the following dispositive portion:

ACCORDINGLY, in view of the foregoing disquisitions, all the three (3) consolidated petitions for certiorari are hereby GRANTED.

THE assailed Order of respondent Judge Arsenio Gonong of the Regional Trial Court of Manila, Branch 8, dated, April 5, 1991, in the first assailed petition forcertiorari (CA-G.R. SP No. 24669); the assailed Order of Judge Bernardo Pardo, Executive Judge of the Regional Trial Court of Manila, Branch 8, dated July 6, 1992, in the second petition for certiorari (CA-G.R. SP No. 28387); and Finally, the assailed order or Resolution en banc of the respondent Court of Tax Appeals[,] Judges Ernesto Acosta, Ramon de Veyra and Manuel Gruba, under date of October 5, 1992, in the third petition for certiorari (CA-G.R. SP No. 29317) are all hereby NULLIFIED and SET ASIDE thereby giving way to the entire decision dated February 18, 1991 of the respondent Regional Trial Court of Manila, Branch 8, in Civil Case No. 89-51451 which remains valid, final and executory, if not yet wholly executed.

THE writ of preliminary injunction heretofore issued by this Court on March 6, 1992 and reiterated on July 22, 1992 and this date against the named respondents specified in the dispositive portion of the judgment of the respondent Regional Trial Court of Manila, Branch 8, in the first petition for certiorari, which remains valid, existing and enforceable, is hereby MADE PERMANENT without prejudice (1) to the petitioner's remaining unpaid obligations to hereinparty-intervenor in accordance with the Compromise Agreement or in connection with the decision of the respondent lower court in CA-G.R. SP No. 24669 and (2) to the government, in relation to the forthcoming decision of the respondent Court of Tax Appeals on the amount of taxes, charges, assessments or obligations that are due, as totally secured and fully guaranteed payment by petitioner's bond, subject to relevant rulings of the Department of Finance and other prevailing laws and jurisprudence. DAHaTc

We make no pronouncement as to costs.

SO ORDERED.

The Court rules in favor of the Commissioner of Customs.

First of all, the Court finds the decision of the RTC of Manila, in so far as it relates to the vessel M/V "Star Ace," to be void as jurisdiction was never acquired over the vessel. 10 In filing the case, Urbino had impleaded the vessel as a defendant to enforce his alleged maritime lien. This meant that he brought an action in rem under the Code of Commerce under which the vessel may be attached and sold. 11 However, the basic operative fact for the institution and perfection of proceedings in remis the actual or constructive possession of the res by the tribunal empowered by law to conduct the proceedings. 12 This means that to acquire jurisdiction over the vessel, as a defendant, the trial court must have obtained either actual or constructive possession over it. Neither was accomplished by the RTC of Manila.

In his comment to the petition, Urbino plainly stated that "petitioner has actual[sic] physical custody not only of the goods and/or cargo but the subject vessel, M/V Star Ace, as well." 13 This is clearly an admission that the RTC of Manila did not have jurisdiction over the res. While Urbino contends that the Commissioner of Custom's custody was illegal, such fact, even if true, does not

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deprive the Commissioner of Customs of jurisdiction thereon. This is a question that ought to be resolved in the seizure and forfeiture cases, which are now pending with the CTA, and not by the regular courts as a collateral matter to enforce his lien. By simply filing a case in rem against the vessel, despite its being in the custody of customs officials, Urbino has circumvented the rule that regular trial courts are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted in the Bureau of Customs, on his mere assertion that the administrative proceedings were a nullity. 14

On the other hand, the Bureau of Customs had acquired jurisdiction over the res ahead and to the exclusion of the RTC of Manila. The forfeiture proceedings conducted by the Bureau of Customs are in the nature of proceedings in rem 15 and jurisdiction was obtained from the moment the vessel entered the SFLU port. Moreover, there is no question that forfeiture proceedings were instituted and the vessel was seized even before the filing of the RTC of Manila case.

The Court is aware that Urbino seeks to enforce a maritime lien and, because of its nature, it is equivalent to an attachment from the time of its existence. 16Nevertheless, despite his lien's constructive attachment, Urbino still cannot claim an advantage as his lien only came about after the warrant of seizure and detention was issued and implemented. The Salvage Agreement, upon which Urbino based his lien, was entered into on June 8, 1989. The warrants of seizure and detention, on the other hand, were issued on January 19 and 20, 1989. And to remove further doubts that the forfeiture case takes precedence over the RTC of Manila case, it should be noted that forfeiture retroacts to the date of the commission of the offense, in this case the day the vessel entered the country. 17 A maritime lien, in contrast, relates back to the period when it first attached, 18 in this case the earliest retroactive date can only be the date of the Salvage Agreement. Thus, when the vessel and its cargo are ordered forfeited, the effect will retroact to the moment the vessel entered Philippine waters.

Accordingly, the RTC of Manila decision never attained finality as to the defendant vessel, inasmuch as no jurisdiction was acquired over it, and the decision cannot be binding and the writ of execution issued in connection therewith is null and void.

Moreover, even assuming that execution can be made against the vessel and its cargo, as goods and chattels to satisfy the liabilities of the other defendants who have an interest therein, the RTC of Manila may not execute its decision against them while, as found by this Court, these are under the proper and lawful custody of the Bureau of Customs. 19 This is especially true when, in case of finality of the order of forfeiture, the execution cannot anymore cover the vessel and cargo as ownership of the Government will retroact to the date of entry of the vessel into Philippine waters. IacHAE

As regards the jurisdiction of the CTA, the CA was clearly in error when it issued an injunction against it from deciding the forfeiture case on the basis that it interfered with the subject of ownership over the vessel which was, according to the CA, beyond the jurisdiction of the CTA. Firstly, the execution of the Decision against the vessel and cargo, as aforesaid, was a nullity and therefore the sale of the vessel was invalid. Without a valid certificate of sale, there can be no claim of ownership which Urbino can present against the Government. Secondly, as previously stated, allegations of ownership neither divest the Collector of Customs of such jurisdiction nor confer upon the trial court jurisdiction over the case. Ownership of goods or the legality of its acquisition can be raised as defenses in a seizure proceeding. 20 The actions of the Collectors of Customs are appealable to the Commissioner of Customs, whose decision, in turn, is subject to the exclusive appellate jurisdiction of the CTA. 21 Clearly, issues of ownership over goods in the custody of custom officials are within the power of the CTA to determine.

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WHEREFORE, the consolidated petitions are GRANTED. The Decision of the Regional Trial Court of Manila dated February 18, 1991 in Civil Case No. 89-51451, insofar as it affects the vessel M/V "Star Ace," the Order of the Regional Trial Court of Kalookan dated May 28, 1991 in Special Civil Case No. C-234, the Resolution of the Court of Appeals dated March 6, 1992 in CA-G.R. SP No. 24669, the Resolution of the Court of Appeals dated August 6, 1992 in CA-G.R. SP No. 28387, the Resolution of the Court of Appeals dated November 10, 1992 in CA-G.R. SP No. 29317 and the Decision of the Court of Appeals dated July 19, 1993 in the consolidated petitions in CA-G.R. SP Nos. 24669, 28387 and 29317 are all SET ASIDE. The Regional Trial Court of Kalookan is enjoined from further acting in Special Civil Case No. C-234. The Order of respondent Judge Arsenio M. Gonong dated April 5, 1991 and the Order of then Judge Bernardo P. Pardo dated June 26, 1992 are REINSTATED. The Court of Tax Appeals is ordered to proceed with CTA Case No. 4492, CTA Case No. 4494 and CTA Case No. 4500. No pronouncement as to costs.

SO ORDERED.

Puno, Sandoval-Gutierrez, Corona and Garcia, JJ., concur.

[G.R. No. 128661. August 8, 2000.]

PHILIPPINE NATIONAL BANK/NATIONAL INVESTMENT DEVELOPMENT CORPORATION, petitioners, vs. THE COURT OF APPEALS, CHINA BANKING CORPORATION, respondents.

The Chief Legal Counsel (Atty. Salvador A. Luy) for petitioner.

Lim Vigilia Alcala Dumlao & Orencia for private respondent.

SYNOPSIS

When PISC was granted guaranty accommodations by petitioner NIDC, PISC executed chattel mortgages, including M/V "Asean Liberty," in favor of petitioners NIDC and PNB. Meanwhile, PISC entered into a Contract Agreement with HongKong United Dockyards, Ltd. for the repair and conversion of M/V "Asean Liberty," and in lieu thereof, PISC opened a Standby Letter of Credit for US$545,000 with respondent CBC in favor of Citibank to cover the expenses. Citibank was able to draw the amount of US$242,225 on the Letter of Credit. For failure of PISC to settle its obligations, when petitioner PNB conducted an auction sale on the mortgaged vessels, with NIDC, as the highest bidder. CBC filed a complaint-in-intervention but the same was dismissed. The Court of Appeals, however, held that PNB/NIDC were liable to CBC for the amount of US$242,225 as preferred maritime lien, to be paid from the proceeds of the foreclosure sale of the vessel M/V "Asean Liberty." cAIDEa

The issues involved mixed questions of fact and law; thus, the Court of Appeals has jurisdiction. On CBC's claim, the applicable rule is PD No. 1521, the Ship Mortgage Decree of 1978, which provides that any person furnishing repairs, supplies or other necessaries to a vessel on credit will have a maritime lien on the said vessel. Such maritime lien, if it arose prior to the recording of a preferred mortgage lien, shall have priority over the said mortgage lien. Here, the maritime lien in favor of Hong Kong United Dockyards, Ltd. constituted on the vessel M/V "Asean Liberty" was acquired by CBC by legal subrogation. This is because CBC paid as guarantor the loan extended by Citibank to PISC to fulfill PISC's obligation to Hong Kong United Dockyards, Ltd. Those who provide credit to a master of a vessel for the purpose of discharging a maritime lien also acquire a lien over the said vessel. Evidently, the amounts sought to be recovered by CBC

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are proceeds of the loans used for the repair and conversion of the vessel M/V "Asean Liberty." The Court also ruled that the claim of CBC is a preferred maritime lien over the mortgage lien considering that the maritime lien attached on the date of contract of repair of the vessel which was March 12, 1979, while the mortgage was recorded later on September 25, 1979.

SYLLABUS

1.REMEDIAL LAW; SUPREME COURT; JURISDICTION; INCLUDES ISSUES INVOLVING PURE QUESTIONS OF LAW. — [T]he decisions of the Regional Trial Court may be directly reviewed by the Supreme Court on petition for review if pure questions of law are raised. Circular 2-90 . . . indirectly states that cases from the Regional Trial Court raising only questions of law should be taken to the Supreme Court. . . [Scrutinizing Paragraphs No. 4 (c) and (d) of the said Circular], it is clear that the Court of Appeals does not have jurisdiction over appeals from the Regional Trial Court that raise purely questions of law. Appeals of this nature should be raised to the Supreme Court. Furthermore, transfer of erroneous appeals is not allowed and the tribunal which receives the erroneous appeal should perforce dismiss the same for lack of jurisdiction.

2.ID.; COURT OF APPEALS; JURISDICTION; WHERE THE ISSUE INVOLVES ONLY QUESTION OF FACT, OR BOTH FACT AND LAW. — Notwithstanding [the] legal rule, the appeal brought before the Court of Appeals . . . must first be analyzed as to whether the same raised questions or errors of law alone. If the petition raised only questions of law, then the Court of Appeals had no jurisdiction to take cognizance of the case and should have dismissed the case outright. On the other hand, if the petition raised only questions of fact or questions of both fact and law, then the Court of Appeals correctly exercised jurisdiction over the issue. As such, even if. . . the documentary evidence adduced by the parties was admitted without objection, a question of fact is still involved when the query necessarily invites the calibration of the whole evidence including the relevancy of surrounding circumstances and their relation to each other. SHacCD

3.COMMERCIAL LAW; MARITIME LAW; PD NO. 1521 (SHIP MORTGAGE DECREE OF 1978); MARITIME LIEN OF A PERSON FURNISHING REPAIRS, SUPPLIES AND OTHER NECESSARIES TO A VESSEL ON CREDIT. — [In] Presidential Decree No. 1521, otherwise known as the Ship Mortgage Decree of 1978, Sections 17 and 21 [thereof provides that] any person furnishing repairs, supplies, or other necessaries to a vessel on credit will have a maritime lien on the said vessel. Such maritime lien, if it arose prior to the recording of a preferred mortgage lien, shall have priority over the said mortgage lien.

4.ID.; ID.; ID.; RIGHT TO MARITIME LIEN OF ONE WHO PROVIDED CREDIT TO DISCHARGE THE SAME ACQUIRES THE MARITIME LIEN BY SUBROGATION. — The provisions of our Ship Mortgage Decree of 1978 were patterned quite closely after the U.S. Ship Mortgage Act of 1920. Significantly, the Federal Maritime Lien Act of the United States, like our Ship Mortgage Decree of 1978, provides that "any person furnishing repairs, supplies, towage, use of drydock, or marine railway, or other necessaries, to any foreign or domestic vessel on the order of the owner of such vessel, or of a person authorized by the owner has a maritime lien on the vessel, which may be enforced by suit in rem." Being of foreign origin, the provisions of the Ship Mortgage Decree of 1978 may thus be construed with the aid of foreign jurisprudence from which they are derived except insofar as they conflict with existing laws or are inconsistent with local customs and institutions. As held by the public respondent Court of Appeals, those who provide credit to a master of a vessel for the purpose of discharging a maritime lien also acquire a lien over the said vessel. Under American jurisprudence, "(f)urnishing money to a master in good faith to obtain repairs or supplies or to remove liens, in order to forward the voyage of the vessel, raises a lien just as though the things (for which) money was obtained to pay for had been furnished by the lender." Likewise, "(a)dvances to discharge maritime liens create a lien on the vessel, and one advancing money to discharge a valid lien gets a lien of equal dignity with the one discharged."

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There is no reason why these doctrines cannot be given persuasive application in the instant case considering that they do not violate or contravene any of our existing laws. Moreover, . . . these doctrines are in accord with our provisions on subrogation particularly Art. 1302, paragraph 2 of the New Civil Code which provides that there is legal subrogation "when a third person, not interested in the fulfillment in the obligation, pays with the express or tacit approval of the debtor." By definition, subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. Considering that Citibank paid off the debt of PISC to Hongkong United Dockyards, Ltd. it became the transferee of all the rights of Hongkong United Dockyards, Ltd. as against PISC, including the maritime lien over the vessel M/V "Asean Liberty." Private respondent CBC, as guarantor, was itself subrogated to all the rights of Citibank as against PISC, the latter's debtor. Article 2067 of the New Civil Code provides that "(t)he guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor." Private respondent, having paid off the debt of PISC to Citibank, was therefore, subrogated to all the rights Citibank had against its debtor PISC. Considering that Citibank had a maritime lien over the vessel M/V "Asean Liberty," private respondent was likewise subrogated to this right when it paid off Citibank under the contract of guarantee.

5.ID.; ID.; ID.; ID.; THAT CREDIT ACTUALLY USED TO PAY DEBTS USED FOR THE VESSEL, REQUIRED. — [A] person who extends credit for the purpose of discharging a maritime lien is not entitled to the said lien "where the funds were not furnished to the ship on the order of the master and there was no evidence that the money was actually used to pay debts secured by the lien.". . . [R]ecords [however], are replete with documents that show that the proceeds of the loans [extended by Citibank to PISC and thereafter paid by CBC] were used for the repair and conversion of the vessel M/V "Asean Liberty."

6.ID.; ID.; ID.; WHEN MARITIME LIEN PREFERRED OVER MORTGAGE LIEN. — Petitioners' mortgage lien arose on September 25, 1979 when the said mortgage was registered with the Philippine Coast Guard Headquarters. As such, in order for the maritime lien of private respondent CBC to be preferred over the mortgage lien of petitioners, the same must have arisen prior to the recording of the mortgage on September 25, 1979. . . As stated by a noted commentator on the subject, a maritime lien "constitutes a present right of property in the ship, a jus in re, to be afterward enforced in admiralty by process in rem. From the moment the claim or privilege attaches, it is inchoate, and when carried into effect by legal process, by a proceeding in rem, it relates back to the period when it first attached." [T]he maritime lien over the vessel M/V "Asean Liberty" arose or was constituted at the time Hongkong United Drydocks, Ltd. made repairs on the said vessel on credit. As such, as early as March 12, 1979, the date of the contract for the repair and conversion of M/V "Asean Liberty," a maritime lien had already attached to the said vessel. When Citibank advanced the amount of US$242,225.00 for the purpose of paying off PISC's debt to Hongkong United Dockyards, Ltd., it acquired the existing maritime lien over the vessel. When private respondent honored its contract of guarantee with Citibank on March 30, 1983, it likewise acquired by subrogation the maritime lien that was already existing over the vessel M/V "Asean Liberty." Thus, when private respondent CBC chose to exercise its right to the maritime lien during the proceedings in the trial court, it was actually enforcing a privilege that attached to the ship as early as March 12, 1979. The maritime lien of private respondent CBC thus arose prior in time to the recording of petitioners' mortgage on September 25, 1979. As such, the said maritime lien has priority over the said mortgage lien. Pursuant to Section 17 of the Ship Mortgage Decree of 1978, a "preferred mortgage lien shall have priority over all claims against the vessel" except, among others, "maritime liens arising prior in time to the recording of the preferred mortgage." ITCHSa

D E C I S I O N

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GONZAGA-REYES, J p:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioners seek the reversal of the 21 March 1997 decision 1 of the Court of Appeals in C.A.-G.R. No. CV-38131. The assailed decision set aside the Order 2 dated 4 March 1992 of the Regional Trial Court of Makati City, Branch 146 in Civil Case No. 7119 insofar as it dismissed the complaint-in-intervention of private respondent China Banking Corporation.

The facts of the case are as follows:

To finance the acquisition of seven (7) ocean-going vessels, namely M/V "Asean Liberty," M/V "Asean Independence," M/V "Asean Mission," M/V "Asean Knowledge," M/V "Asean Nations," M/V "Asean Greatness," and M/V "Asean Objectives," the Philippine International Shipping Corporation (hereinafter "PISC") applied for and was granted by petitioner National Investment and Development Corporation (hereinafter "NIDC") the following guaranty accommodations:

a.US$9.44 Million in favor of Ultrafin A.G. of Zurich, Switzerland as Agent for the banks/financial institutions as evidenced by and subject to the terms and conditions of a Guaranty Agreement dated December 7, 1978 to partly finance the acquisition of two (2) ocean-going vessels;

b.US$23.60 Million in favor of the Philippine National Bank (hereinafter "PNB" as evidenced by and subject to the terms and conditions of a Consolidated Amendatory Agreement dated January 25, 1979 to finance the acquisition cost of four (4) additional ocean-going vessels; and

c.US$1.291 Million in favor of PNB as evidenced by and subject to the terms and conditions of that Second Consolidated Amendatory Agreement dated July 17, 1979 to finance the additional acquisition cost of one (1) ocean-going vessel. 3

As security for these guaranty accommodations, PISC executed in favor of petitioners the following mortgage documents:

a.Deed of Chattel Mortgage dated September 14, 1979 constituted on M/V "Asean Liberty" and M/V "Asean Nation" and recorded on September 25, 1979 with the Philippine Coast Guard Headquarters;

b.Supplemental Chattel Mortgage dated October 2, 1979 constituted on M/V "Asean Independence," M/V "Asean Mission," M/V "Asean Knowledge," and M/V "Asean Objectives" and recorded with the Philippine Coast Guard Headquarters on February 13, 1980; and

c.Supplemental Chattel Mortgage constituted on M/V "Asean Greatness" and recorded with the Philippine Coast Guard Headquarters on February 3, 1981. 4

Meanwhile, on March 12, 1979, PISC entered into a Contract Agreement with Hong Kong United Dockyards, Ltd. for the repair and conversion of the vessel M/V "Asean Liberty" at a contract price of HK$2,200,000.00 variable as provided therein. 5

On May 28, 1979, the Central Bank of the Philippines authorized PISC to open with private respondent China Banking Corporation (hereinafter "CBC") a standby letter of credit for

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US$545,000.00 in favor of Citibank, N.A. (hereinafter "Citibank") to cover the repair and partial conversion of the vessel M/V "Asean Liberty." This was pursuant to the letter of the Central Bank of the Philippines dated May 28, 1979 as amended on June 20, 1979. 6

On June 15, 1979, PISC executed an Application and Agreement for Commercial Letter of Credit for $545,000.00 with private respondent CBC in favor of Citibank. Pursuant to this application and agreement, private respondent CBC issued on September 12, 1979 its Irrevocable Standby Letter of Credit No. 79/4174 for US$545,000.00 in favor of Citibank for account of PISC.

On September 17, 1979, a Promissory note for US$545,000.00 was executed by PISC in favor of Citibank pursuant to the Loan Agreement for US$545,000.00 between PISC, as borrower, and Citibank, as lender. 7

Upon failure of PISC to fulfill its obligations under the said promissory note, Citibank sent to private respondent CBC a letter dated March 25, 1983 drawing on Letter of Credit No. 79/4174. In this letter, Citibank certified that the draft attached thereto for US$242,225.00 represented the principal balance due to Citibank as of March 17, 1983 under the promissory note executed by PISC, the proceeds of which were used for the repair and conversion of M/V Asean Liberty. Thus, on March 30, 1983, CBC instructed its correspondent Irving Trust Co., by cable, to pay to Citibank the amount of US$242,225.00. On the same date, Irving Trust Co. advised private respondent CBC by mail that the amount of US$242,225.00 had been debited against CBC's Account No. 8033278269 and remitted to Citibank. 8

On May 10, 1983, for failure of PISC to settle its obligations in the amount of US$64,789,470.96, petitioner PNB conducted, thru the Sheriff's Office, an auction sale of the mortgaged vessels, except for the vessel M/V "Asean Objective." Petitioner NIDC emerged as the highest bidder in these auctions. 9

On May 27, 1983, claiming that the foreclosure sale of its mortgaged vessels was illegal, unjust, irregular, and oppressive, PISC instituted before the Regional Trial Court of Makati, a civil case 10 against petitioners for the annulment of the foreclosure and auction sale of its vessels and damages. TSEcAD

As accurately narrated in the trial court's Order and adopted by the Court of Appeals in its Decision of March 21, 1997, the following proceedings transpired in the lower court:

"Records show that on May 27, 1983, PISC (Philippine International Shipping Corporation) filed suit against National Investment and Development Corporation (NIDC, for short) and Philippine National Bank (PNB, for short) for annulment of foreclosure of mortgage and auction sale with damages vis-a-visthe sale on foreclosure of vessels Asean Mission, Asean Knowledge, Asean Nations and Asean Greatness (as well as Asean Liberty and Asean Independence). NIDC answered the complaint, and in an amended answer impleaded additional counterclaim defendants. In an Order dated September 29, 1984, then Judge Jose L. Coscolluela, Jr. dismissed the complaint as against PNB and the counterclaimed defendants. And under date of November 3, 1986, the complaint itself against and the NIDC counterclaims were dismissed with prejudice.

In the meantime, NIDC acquired the vessels as highest bidder in the foreclosure thereof initiated by PNB, NIDC having thereafter disposed of said vessels in favor of the National Steel Corporation (NSC).

Complaints in intervention were filed by and for Unitor Ships Services PTE, Ltd., IMO Industries AB, UDDVALLARVARVET AB, Hyundai, Shipyard Co., Lloyd's, China bank, Chiang Tung Enterprises Co., Ltd., Pan Asia, Inc., and HANMF Marine Service, Co., Ltd., for recovery upon maritime liens against the proceeds of the sale of the foreclosed vessels.

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The parties concerned, except for intervenors Lloyd's and China Bank, eventually submitted a Compromise Agreement dated July 12, 1989, and made the basis for the Decision of August 23, 1989.

As first stated, there now remain only Lloyd's and China Bank claims in intervention, recovery upon which is covered by a PNB bank guarantee therefor if found matters of entitlement (sic) by said intervenors.

Intervenor Lloyd's claim is for 'the service of herein intervenor Lloyd's Register of Shipping to class aforementioned vessels (M/V Asean Nations and Asean Greatness) during the period covering July 22, 1981 to July 14, 1983 and the cost for said maritime surveys in the sum of HK$65,930.00, UKC10,363.45 and P9,653.00' said to have been unpaid by PISC despite demands. NIDC traversed the Lloyd's claim as not being preferred maritime liens and in any event inferior in nature.

Intervenor China Bank's claims are predicated on (i) a China Bank Standby Letter of Credit in favor of Citibank, N.A. purportedly to cover repair and partial conversion of M/V Asean Liberty, to the extent of US$242,225.00 paid by China Bank to Citibank, and said to be now owing by PISC together with stipulated interest; (ii) a China Bank loan of US$2,700,000.00 as evidenced by a promissory note, the loan proceeds said to have allowed PISC to reduce overhead expenses and afford it competitive advantage in overseas shipping, and to pay for bunker fuel, defray port expenses and storage, container rental and insurance, as well as salaries and wages of crew members; and (iii) a China bank commercial letter of credit to PISC in favor of Bank of America, particularly a BA Draft for US$648,002.54 said to have been applied towards vessel repair and conversion by the China Shipbuilding Corporation of Taiwan, together with stipulated interests due from PISC. China Bank's claims are premised on the above as being preferred maritime liens. NIDC rejects said claims as not being maritime liens, much less preferred maritime liens.

Shortly after the undersigned penning Judge assumed his duties in this Court, Lloyd's and China Bank were enjoined to furnish opposite counsel with copies of the documentation of their respective claims, to obviate the necessity of adducing evidence in point on matters capable of stipulation. Thus, failing formulation of any amicable settlement in the manner arrived at by all other intervenors, pre-trial proceedings for the subject last remaining claims in intervention by and for Lloyd's and China Bank resulted in an August 9, 1991 Pre-Trial Order which set forth —

'A.NATURE OF THE CASE

Claimant-intervenor Lloyd's Register of Shipping seeks recovery as unpaid creditor of HK$65,930., UK Pounds €10,363.45 and P9,653.00 as being in the nature of preferred maritime liens on the vessels M/V "ASEAN NATIONS" and "ASEAN GREATNESS," representing costs for maritime services rendered for said vessels for the period July 22, 1981 to July 14, 1983.

Intervenor-claimant China Banking Corporation seeks recovery, as being in the nature of a preferred maritime lien, of the sum of US$3,890,227.53, representing the totality of loans extended by said intervenor-claimant said to have been expended in financing repair and conversion costs, for expenses and storage container rentals and insurance premium paid out by it.

Plaintiffs admit the recoverability of said claims as being in the nature of preferred maritime liens, whereas PNB-NIDC contests the said claims.

B.STIPULATIONS AND ADMISSIONS.

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Plaintiffs, PNB-NIDC and intervenor-claimant Lloyd's Register of Shipping stipulate and admit that the totality of its claims as fully supported by documentation already verified by the parties are in the sums of HK$65,930.00, UKC10,363.45 and P9,653.00.

Plaintiffs, PNB-NIDC and intervenor-claimant China Banking Corporation stipulate and admit that the totality of its claim is in the sum of US$3,870,227.53 as fortified by documentation already verified in point.

C.ISSUES.

The parties have agreed to limit the resolution of the last two remaining claims in intervention aforementioned to the following legal questions:

i.Whether or not said claims, in the context in which they sought to be recovered, are preferred maritime lien as would entitle said claims to recover, and

ii.Whether or not assuming recoverability thereon as being in the nature of maritime liens, such recovery may be allowed in relation with PNB's being the mortgagee of the assets from which recovery is sought.

Considering that the issues to be addressed are purely legal in nature, presentation of evidence and/or witnesses in point is unnecessary."' 11

After the parties submitted their respective memoranda, the trial court issued on March 4, 1992 an Order dismissing the complaint-in-intervention filed by private respondent CBC for lack of merit. In dismissing the complaint-in-intervention, the trial court ruled that the claim of private respondent CBC was not a preferred maritime lien but was merely a loan extended to PISC by CBC.

Private respondent CBC appealed the Order of the trial court to the Court of Appeals. In its appeal, private respondent CBC imputed the following errors allegedly committed by the trial court:

a)the trial court erred in holding that the loans extended by China Banking Corporation to the Philippine International Shipping Corporation did not create maritime liens.

b)assuming that the loans are not themselves maritime liens, the trial court erred in holding that the China Banking Corporation did not acquire the maritime liens of Philippine International Shipping Corporation's creditors by subrogation.

For its part, herein petitioners PNB/NIDC raised as an issue in its Appellee's Brief before the Court of Appeals the lack of jurisdiction of the appellate court to entertain and pass upon the appeal interposed by CBC on the ground that the issues raised therein were purely legal; and that the appeal of CBC should have been lodged with the Supreme Court by petition for review on certiorari. 12

On March 21, 1997, the Court of Appeals promulgated its questioned decision, the dispositive portion of which states:

"WHEREFORE, insofar as the appellant CBC is concerned, the appealed Order is hereby SET ASIDE and judgment is rendered:

(a)Directing the appellee Philippine National Bank/National Investment and Development Corporation to pay the appellant China Banking Corporation from the proceeds of

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the foreclosure sale of M/V Asean Liberty the amount of US$242,225.00 or its Philippine Peso Equivalent at the time of payment, with interest thereon at the legal rate from November 7, 1984, the date of filing of CBC's complaint-in-intervention, until fully paid; and

(b)Ordering the appellee Philippine International Shipping Corporation to pay the same CBC the amounts of US$648,002.54 and US$2.7 Million plus stipulated interests, arrangement fees, swap premiums, expenses, losses, taxes and penalties,

xxx xxx xxx

SO ORDERED." 13

In the said decision, the appellate court held petitioners PNB/NIDC liable to CBC only for the amount of US$242,225.00, which was used for the repair and conversion of the M/V "Asean Liberty," as it was only this amount which CBC was able to prove as being a preferred maritime lien. Moreover, such amount was to be paid by petitioners PNB/NIDC from the proceeds of the foreclosure sale of the vessel M/V "Asean Liberty." Private respondent CBC's other claims of US$648,000.54 and US$2.7 Million were found by the appellate court as not being in the nature of maritime liens and as such, recoverable only from PISC, not from herein petitioners PNB/NIDC.

Not satisfied with the decision of the appellate court, petitioners PNB/NIDC institute the present petition for review on certiorari where they raise the following issues:

I.

WHETHER OR NOT THE COURT OF APPEALS HAS APPELLATE JURISDICTION TO ENTERTAIN AND PASS UPON THE APPEAL INTERPOSED BY PRIVATE RESPONDENT CBC FROM THE ORDER OF THE TRIAL COURT OF MARCH 4, 1992 WHICH INVOLVED PURE QUESTIONS OF LAW.

II.

WHETHER OR NOT PRIVATE RESPONDENT CBC'S CLAIM FOR US$242,225.00 AS EVIDENCED BY ITS IRREVOCABLE LETTER OF CREDIT NO. 79/4174 OF SEPTEMBER 12, 1979 IS IN THE NATURE OF A MARITIME LIEN UNDER THE PROVISIONS OF P.D. NO. 1521; AND IF SO, WHETHER OR NOT SAID MARITIME LIEN IS PREFERRED OVER THE MORTGAGE LIEN OF PETITIONER PNB/NIDC ON THE FORECLOSED VESSEL M/V "ASEAN LIBERTY."

On the first issue, petitioners argue that the Court of Appeals committed grave error in law in taking cognizance of the appeal interposed by private respondent CBC from the Order of the trial court dated 4 March 1992 involving as it does pure questions of law. They claim that the Court of Appeals had no jurisdiction to entertain and pass upon the appeal interposed by private respondent CBC as the issues raised therein are purely legal. As such, petitioners continue, the appeal of CBC should have been lodged directly with the Supreme Court by way of petition for review on certiorari under Rule 45 of the Revised Rules of Court. Citing the pronouncement of this Court en banc in Anacleto Murillo vs. Rodolfo Consul, 14 the petitioners conclude that the appeal made by private respondent CBC to the Court of Appeals should have been dismissed by the respondent court for lack of jurisdiction.

It is true that the decisions of the Regional Trial Court may be directly reviewed by the Supreme Court on petition for review if pure questions of law are raised.Circular 2-90, 15 which petitioners cite and which outlined the applicable rules of procedure on this matter at that time, indirectly states that cases from the Regional Trial Court raising only questions of law should be taken to the Supreme Court. Paragraphs No. 4(c) and (d) of the said Circular provide as follows:

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"4.Erroneous Appeals. — An appeal taken to either the Supreme Court or the Court of Appeals by the wrong or inappropriate mode shall be dismissed.

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(c)Raising issues purely of law in the Court of Appeals or appeal by wrong mode. — If an appeal under Rule 41 is taken from the Regional Trial Court to the Court of Appeals and therein the appellant raises only questions of law, the appeal shall be dismissed, issues purely of law not being reviewable by said court. . . .

(d)No transfer of appeals erroneously taken. — No transfers of appeals erroneously taken to the Supreme Court or to the Court of Appeals to whichever of these Tribunals has appropriate appellate jurisdiction will be allowed; continued ignorance or willful disregard of the law on appeals will not be tolerated."

From the cited provisions, it is clear that the Court of Appeals does not have jurisdiction over appeals from the Regional Trial Court that raise purely questions of law. Appeals of this nature should be raised to the Supreme Court. 16 Furthermore, transfer of erroneous appeals is not allowed and the tribunal which receives the erroneous appeal should perforce dismiss the same for lack of jurisdiction.

Notwithstanding this legal rule, the appeal brought before the Court of Appeals by the private respondent CBC must first be analyzed as to whether the same raised questions or errors of law alone. If the petition raised only questions of law, then the Court of Appeals had no jurisdiction to take cognizance of the case and should have dismissed the case outright. On the other hand, if the petition raised only questions of fact or questions of both fact and law, then the Court of Appeals correctly exercised jurisdiction over the issue. 17

As such, even if, as in this case, the documentary evidence adduced by the parties was admitted without objection, a question of fact is still involved when the query necessarily invites the calibration of the whole evidence including the relevancy of surrounding circumstances and their relation to each other.

On this point, we note with approval the following justification made by the respondent court in assuming jurisdiction over the case: THEDcS

"A question of fact has been distinguished from a question of law in this wise:

'At this point, the distinction between a question of fact and a question of law must be clear. As distinguished from a question of law which exists 'when the doubt or difference arises as to what the law is on certain state of facts' — 'there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts'; or when the query necessarily invites calibration of the whole evidence considering mainly the credibility of witnesses, existence and relevancy of specific surrounding circumstances, their relation to each other and to the whole and probabilities of the situation.' (Bernardo vs. Court of Appeals, 216 SCRA 224)

Stated differently, a question of law does not involve an examination of the probative value of the evidence presented by the litigants or any of them; otherwise, if such examination and re-evaluation of the evidence is called for, a question of fact is raised.

"In the decision from which the CBC appealed, the trial court primarily held that the former is a mere money lender and not a maritime lienor. In its appeal, the CBC argues that in so holding, the trial court disregarded the maritime purposes for which the loans it extended to the Philippine International Shipping Corporation (PISC) were availed of and used. The issue thus raised cannot be judiciously resolved without reviewing the probative weight of

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the evidence on record consisting in the main of the various documents, contracts and transactions attached to CBC's complaint-in-intervention. It is, therefore, indubitable that mixed questions of fact and of law are involved over which this Court has jurisdiction." 18

Thus, in resolving the issues raised by private respondent in the Court of Appeals, the appellate court had to make a factual inquiry, among others, on the nature and terms of the contracts among the different parties, the relationship of the different parties with one another and with respect to the vessels involved in the case, how the proceeds of the loans were used, and the correct dates when the maritime and mortgage liens were constituted on the vessels. The determination of these facts is crucial as it will resolve whether the amount advanced by respondent CBC is in the nature of a maritime lien and if so, whether the lien is superior to the mortgage lien of petitioners. If the appellate court, in the exercise of its review power, finds that the amount advanced by CBC was used for the repair of the vessels, then a mortgage lien was indubitably established over the shipping vessels. Moreover, a determination of the dates when the respective liens of the parties were constituted over the vessels will answer the question as to which lien is preferred over the other. In short, in order to address fully the issues raised by the parties in their pleadings, the appellate court necessarily had to make factual findings.

Verily, the issues raised by private respondent in the appellate court were cognizable by the said court, the issues being mixed questions of fact and law. Respondent court was therefore acting within its jurisdiction when it promulgated its questioned decision.

The next issue brought up by petitioners is whether or not private respondent CBC's claim for US$242,225.00 is in the nature of a maritime lien. It is the contention of petitioners that "(t)he Court of Appeals gravely erred in law in holding that private respondent CBC's claim under its Standby Letter of Credit No. 79/4174 is a maritime lien, and that said maritime lien is preferred over the mortgage lien of petitioners PNB/NIDC on the foreclosed vessel M/V Asean Liberty." 19

The applicable law on the matter is Presidential Decree No. 1521, otherwise known as the Ship Mortgage Decree of 1978. Sections 17 and 21 of the said Presidential Decree provides as follows:

"Sec. 17.Preferred Maritime Liens, Priorities, Other Liens. — (a) Upon the sale of any mortgaged vessel in any extrajudicial sale or by order of a district court of the Philippines in any suit in rem in admiralty for the enforcement of a preferred mortgage lien thereon, all pre-existing claims on the vessel, including any possessory common-law lien of which a lienor is deprived under the provisions of Section 16 of this Decree, shall be held terminated and shall thereafter attach, in like amount and in accordance with the priorities established herein to the proceeds of the sale. The preferred mortgage lien shall have priority over all claims against the vessel, except the following claims in the order stated: (1) expenses and fees allowed and costs taxed by the court and taxes due to the government; (2) crew's wages; (3) general average; (4) salvage; including contract salvage; (5) maritime liens arising prior in time to the recording of the preferred mortgage; and (6) damages arising out of tort; and (7) preferred mortgage registered prior in time.

(b)If the proceeds of the sale should not be sufficient to pay all creditors included in one number or grade, the residue shall be divided among them pro rata. All credits not paid, whether fully or partially shall subsist as ordinary credits enforceable by personal action against the debtor. The record of judicial sale or sale by public auction shall be recorded in the Record of Transfers & Encumbrances of Vessels in the port of documentation."

"Sec. 21.Maritime Lien for Necessaries; persons entitled to such lien. — Any person furnishing repairs, supplies, towage, use of dry dock or maritime railway, or other necessaries to any vessel, whether foreign or domestic, upon the order of the owner, shall

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have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall be necessary to allege or prove that credit was given to the vessel."

Under these provisions, any person furnishing repairs, supplies, or other necessaries to a vessel on credit will have a maritime lien on the said vessel. Such maritime lien, if it arose prior to the recording of a preferred mortgage lien, shall have priority over the said mortgage lien.

In the instant case, it was Hongkong United Dockyards, Ltd. which originally possessed a maritime lien over the vessel M/V "Asean Liberty" by virtue of its repair of the said vessel on credit. Under the Contract Agreement dated March 12, 1979 between Hongkong United Dockyards, Ltd. and PISC, the former, as contractor, obligated itself to repair and convert the vessel M/V "Asean Liberty," which was owned by PISC. Section 7 of the said Agreement provides as follows:

"(7) a)The Owner will, before the commencement of work, provide an Irrevocable Documentary Credit for the Contract Price plus an estimate to cover the cost of extra work. The banks and wording of the Credit are to be agreed by the Contractor.

b)Payment will be:

(1)Before departure of vessel from Contractor's yard: 20% of contract price;

(2)60 days from departure of vessel from Contractors yard: 40% of contract price;

(3)90 days from departure of vessel from Contractors yard: 40% of contract price." 20

The foregoing provision of the contract agreement indubitably shows that credit was given to the vessel M/V "Asean Liberty" by Hongkong United Dockyards, Ltd. and as a result, a maritime lien in favor of Hongkong United Dockyards, Ltd. was constituted on the said vessel by virtue of Section 21 of the Ship Mortgage Decree of 1978.

It is the contention of private respondent CBC however, that it ultimately acquired the maritime lien of Hongkong United Dockyards, Ltd. over the vessel M/V "Asean Liberty." As shown by the documentary evidence offered by private respondent CBC, its proof that it acquired said maritime lien is as follows:

(a)On March 12, 1979, PISC entered into a Contract Agreement with Hongkong United Dockyards, Ltd., as contractor, for the repair and conversion of its vessel M/V "Asean Liberty" for a contract price of HK$2,200,000.00 21 ;

(b)On May 28, 1979, the Central Bank of the Philippines approved PISC's request to open with private respondent China Banking Corporation a Standby Letter of Credit for US$545,000.00 in favor of Hongkong United Dockyards, Ltd. This May 28, 1979 letter stated that the credit for US$545,000 would be used "to cover the partial conversion cost of the vessel 'Asean Liberty."' On June 20, 1979, the Central Bank approved the request of PISC to change the beneficiary of the said Standby Letter of Credit from Hongkong United Dockyards, Ltd. to Citibank 22 ;

(c)On June 15, 1979, PISC executed an Application and Agreement with private respondent CBC for the opening of a Standby Letter of Credit for US$545,000.00 in favor of Citibank, N.A.., Makati, Metro Manila as beneficiary. The agreement confirmed that the letter of credit would be

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used to guarantee the loan in the amount of US$545,000.00, the proceeds of which will be used "to finance partially the conversion cost of the vessel MV 'ASIAN LIBERTY"' 23 ;

(d)On September 12, 1979, private respondent CBC issued an Irrevocable Standby Letter of Credit in favor of Citibank for any sum or sums not exceeding a total of US$545,000.00. Per express terms of the Letter of Credit, its purpose was "to guarantee (Citibank's) loan to Philippine International Shipping Corporation, the proceeds of which loan, according to accountee, are to finance partially the conversion cost of the vessel M/V 'ASIAN LIBERTY"' 24 ;

(e)Pursuant to its loan agreement with Citibank, PISC executed on September 17, 1979 a promissory note for US$545,000.00 in favor of Citibank, promising to pay the later the principal sum of US$545,000.00 in nine (9) consecutive semi-annual installments of US$60,555.00 commencing one (1) year from date hereof or on September 17, 1980 until September 17, 1984 25 ;

(f)On March 25, 1983, Citibank sent a letter to private respondent CBC calling and drawing on CBC's Letter of Credit No. 79/4174 and certifying that the draft attached thereto for US$242,225.00 represents the principal balance due to Citibank as of March 17, 1983 under PISC's Promissory Note of September 17, 1979. 26 This March 25, 1983 letter likewise indicated that the loan due from PISC was used to finance partially the conversion cost of the vessel M/V "Asian Liberty";

(g)On March 30, 1983, private respondent CBC instructed by cable its correspondent, Irving Trust Co., to pay Citibank US$242,225.00. On the same date, Irving Trust Co., advised private respondent CBC by mail that the sum of US$242,225.00 was debited against CBC's Account No. 8033278269 and remitted to the Citibank Foreign Currency Deposit Unit, Makati 27 ;

From the documentary evidence thus presented, it is clear that private respondent's claim is predicated on the payment it made to Citibank by virtue of the Irrevocable Letter of Credit it established in the latter's favor. Per express provisions of the Letter of Credit, the same was established to "guarantee your (Citibank) loan in the principal amount of US$545,000.00 to Philippine International Shipping Corporation, the proceeds of which loan, according to accountee, are to finance partially the conversion cost of the vessel M/V "Asean Liberty.'" 28

In short, private respondent CBC was a guarantor of the loan extended by Citibank to PISC. It was Citibank, which advanced the money to PISC. It was only upon the failure of PISC to fulfill its obligations under its promissory note to Citibank that private respondent CBC was called upon by Citibank to exercise its duties under the Standby Letter of Credit.

It is the holding of the appellate court, however, that private respondent stepped into the shoes of Hongkong United Dockyards, Ltd. by legal subrogation and thus acquired the maritime lien of the latter over the vessel M/V "Asean Liberty." Thus:

"It is not disputed that CBC's claim for US$242,225.00 and US$648,002.54 refer to the repair and conversion of two (2) of PISC's vessels, namely M/V Asean Liberty and M/V Asean Mission, undertaken by Hongkong United Dockyards, Ltd. and the China

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Shipbuilding Corporation of Taiwan, respectively, upon the order of the owner, as deposed by George Lim, the President of the PISC. Such being the case, maritime liens on the vessels concerned arose conformably with the aforequoted provision of Section 21 of P.D. No. 1521. True it is that under the law the persons entitled to the lien are the Hongkong United Dockyards, Ltd. and the China Shipbuilding Corporation of Taiwan, they being the ones who furnished the repair works. However, since it was CBC who paid off these lienors, it stepped into the shoes of the latter by subrogation. This is the prevailing doctrine in American jurisprudence which holds that: 'A creditor who advances money specifically for the purpose of discharging a maritime lien is subrogated to the lienor's rights.' Significantly, the Federal Maritime Lien Act, like our Ship Mortgage Decree of 1978, provides that, 'any person furnishing repairs, supplies, towage, use of drydock or marine railway, or other necessaries, to any foreign or domestic vessel on the order of the owner of such vessel, or of a person authorized by the owner of such vessel, or of a person authorized by the owner has a maritime lien on the vessel which may be enforced by suit in rem.' The only difference is that under the Federal Maritime Lien Act, it is not necessary to allege or prove that the credit was given to the vessel. Hence, insofar as the creation of the lien and the persons entitled to the lien are concerned, American jurisprudence is highly persuasive. Furthermore, Article 1302 (2) of our Civil Code explicitly provides:

'Art. 1302 (2). It is presumed that there is legal subrogation:

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(2)When a third person not interested in the obligation pays with the express or tacit approval of the debtor;

xxx xxx xxx.'

Accordingly, since CBC's payment to the lienors was with the express consent of the debtor owner of the vessels repaired, legal subrogation took place in CBC's favor."

Petitioners do not question the abovequoted rationale of the Court of Appeals. It takes exception however to the appellate court's finding and conclusion that it was ultimately private respondent CBC which paid off the maritime lienor and that the US$545,000.00 advanced by Citibank was actually paid to the persons who furnished the repairs on the vessels. On this point, petitioners argue that the entirety of the documentary evidence of private respondent CBC does not show that the latter actually paid off the maritime lienholder for the repair of M/V "Asean Liberty" as required by Section 21 of the Ship Mortgage Act of 1978. 29 Furthermore, petitioners claim that the respondent court committed serious error in law when it considered and gave credence to the written deposition of Mr. George Lim, the President of PISC, as basis for the said finding considering that the same had earlier been denied admission by the trial court.

There is no merit in the contentions of petitioners.

The provisions of our Ship Mortgage Decree of 1978 were patterned quite closely after the U.S. Ship Mortgage Act of 1920. 30 Significantly, the Federal Maritime Lien Act of the United States, like our Ship Mortgage Decree of 1978, provides that "any person furnishing repairs, supplies, towage, use of drydock, or marine railway, or other necessaries, to any foreign or domestic vessel on the order of the owner of such vessel, or of a person authorized by the owner has a maritime lien on the vessel, which may be enforced by suit in rem." 31 Being of foreign origin, the provisions of the Ship Mortgage Decree of 1978 may thus be construed with the aid of foreign jurisprudence from which they are derived except insofar as they conflict with existing laws or are inconsistent with local customs and institutions.

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As held by the public respondent Court of Appeals, those who provide credit to a master of a vessel for the purpose of discharging a maritime lien also acquire a lien over the said vessel. Under American jurisprudence, "(f)urnishing money to a master in good faith to obtain repairs or supplies or to remove liens, in order to forward the voyage of the vessel, raises a lien just as though the things (for which) money was obtained to pay for had been furnished by the lender." 32 Likewise, "(a)dvances to discharge maritime liens create a lien on the vessel, and one advancing money to discharge a valid lien gets a lien of equal dignity with the one discharged." 33 There is no reason why these doctrines cannot be given persuasive application in the instant case considering that they do not violate or contravene any of our existing laws. Moreover, as pointed out by the appellate court, these doctrines are in accord with our provisions on subrogation particularly Art. 1302, paragraph 2 of the New Civil Code which provides that there is legal subrogation "when a third person, not interested in the fulfillment in the obligation, pays with the express or tacit approval of the debtor."

Under these doctrines, a person who extends credit for the purpose of discharging a maritime lien is not entitled to the said lien "where the funds were not furnished to the ship on the order of the master and there was no evidence that the money was actually used to pay debts secured by the lien." 34 As applied in the instant case, it becomes necessary to prove that the credit advanced by Citibank to PISC was actually utilized for the repair and conversion of the vessel M/V "Asean Liberty." Otherwise, Citibank could not have acquired the maritime lien of Hongkong United Dockyards, Ltd. over the vessel M/V "Asean Liberty."

On this point, we agree with the position of private respondent that the question of whether or not the proceeds of the loans extended by Citibank were used for the repair and conversion of M/V "Asean Liberty" is a factual issue 35 which the Court cannot review absent a showing that it was arbitrarily resolved. 36

Contrary to the assertions of petitioners, the records are replete with documents that show that the proceeds of the loans were used for the repair and conversion of the vessel M/V "Asean Liberty." Even without the written deposition of Mr. George Lim, there is still sufficient documentary evidence in the records supporting the appellate court's findings. The correspondences between PISC and the Central Bank, the Application and Agreement, and the Standby Letter of Credit itself explicitly state that the proceeds of the loan applied for by PISC are to be used to finance partially the conversion cost of the vessel M/V "Asean Liberty." Moreover, the March 25, 1983 letter of Citibank to private respondent CBC drawing on the latter's letter of credit, confirmed that the loan due from PISC was used to finance partially the conversion cost of the said vessel. TICaEc

In the presence of such documentary evidence, which were admitted without objection from the petitioners, we cannot say that the Court of Appeals resolved the issue arbitrarily. The appellate court's finding that the amount sought to be recovered by petitioner was actually used for the repair and conversion of the vessel M/V "Asean Liberty" is based on substantial evidence.

From the foregoing, it is clear that the amount used for the repair of the vessel M/V "Asean Liberty" was advanced by Citibank and was utilized for the purpose of paying off the original maritime lienor, Hongkong United Dockyards, Ltd. As a person not interested in the fulfillment of the obligation between PISC and Hongkong United Dockyards, Ltd., Citibank was subrogated to the rights of Hongkong United Dockyards, Ltd. as maritime lienor over the vessel, by virtue of Article 1302, par. 2 of the New Civil Code. By definition, subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. 37 Considering that Citibank paid off the debt of PISC to Hongkong United Dockyards, Ltd. it became the transferee of all the rights of Hongkong United Dockyards, Ltd. as against PISC, including the maritime lien over the vessel M/V "Asean Liberty."

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Private respondent CBC, as guarantor, was itself subrogated to all the rights of Citibank as against PISC, the latter's debtor. Article 2067 of the New Civil Code provides that "(t)he guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor." Private respondent, having paid off the debt of PISC to Citibank, was therefore, subrogated to all the rights Citibank had against its debtor PISC. Considering that Citibank had a maritime lien over the vessel M/V "Asean Liberty," private respondent was likewise subrogated to this right when it paid off Citibank under the contract of guarantee.

Having thus established that private respondent CBC possessed a maritime lien over the vessel M/V "Asean Liberty," the next issue is whether the said maritime lien is preferred over the mortgage lien of petitioners.

In the case at bench, petitioners' mortgage lien arose on September 25, 1979 when the said mortgage was registered with the Philippine Coast Guard Headquarters.38 As such, in order for the maritime lien of private respondent CBC to be preferred over the mortgage lien of petitioners, the same must have arisen prior to the recording of the mortgage on September 25, 1979.

On this point, petitioners argue that inasmuch as the Standby Letter of Credit was in the nature of a guarantee, the right of private respondent CBC to claim or to collect the maritime lien arose only at the time CBC actually paid off the said lien to Citibank on March 30, 1983. Otherwise stated, it is the contention of petitioners that private respondent CBC's maritime lien under its Standby Letter of Credit No. 79/4174 arose only on March 30, 1983 when CBC actually paid off the outstanding obligation of PISC to Citibank. 39 Considering that its mortgage lien arose on September 25, 1979, petitioners thus conclude that its lien is preferred as against private respondent CBC's maritime lien. aIEDAC

There is no merit in this contention.

As stated by a noted commentator on the subject, a maritime lien "constitutes a present right of property in the ship, a jus in re, to be afterward enforced in admiralty by process in rem. From the moment the claim or privilege attaches, it is inchoate, and when carried into effect by legal process, by a proceeding in rem, it relates back to the period when it first attached." 40

In the case at bench, the maritime lien over the vessel M/V "Asean Liberty" arose or was constituted at the time Hongkong United Drydocks, Ltd. made repairs on the said vessel on credit. As such, as early as March 12, 1979, the date of the contract for the repair and conversion of M/V "Asean Liberty," a maritime lien had already attached to the said vessel. When Citibank advanced the amount of US$242,225.00 for the purpose of paying off PISC's debt to Hongkong United Dockyards, Ltd., it acquired the existing maritime lien over the vessel. When private respondent honored its contract of guarantee with Citibank on March 30, 1983, it likewise acquired by subrogation the maritime lien that was already existing over the vessel M/V "Asean Liberty." Thus, when private respondent CBC chose to exercise its right to the maritime lien during the proceedings in the trial court, it was actually enforcing a privilege that attached to the ship as early as March 12, 1979.

The maritime lien of private respondent CBC thus arose prior in time to the recording of petitioners' mortgage on September 25, 1979. As such, the said maritime lien has priority over the said mortgage lien. Pursuant to Section 17 of the Ship Mortgage Decree of 1978, a "preferred mortgage lien shall have priority over all claims against the vessel" except, among others, "maritime liens arising prior in time to the recording of the preferred mortgage." The respondent

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court thus committed no reversible error when it ruled that the maritime lien of private respondent CBC is superior to the mortgage lien of petitioners.

WHEREFORE, in view of the foregoing, the petition is denied and the decision of the Court of Appeals dated March 21, 1997 in CA-G.R. CV. No. 38131 is hereby AFFIRMED.

SO ORDERED.

Melo, Vitug, Panganiban, and Purisima, JJ., concur.

[G.R. No. 163156. December 10, 2008.]

NEGROS NAVIGATION CO., INC., petitioner, vs. COURT OF APPEALS, SPECIAL TWELFTH DIVISION AND TSUNEISHI HEAVY INDUSTRIES (CEBU), INC., respondents.

[G.R. No. 166845. December 10, 2008.]

TSUNEISHI HEAVY INDUSTRIES (CEBU), INC., petitioner, vs. NEGROS NAVIGATION CO., INC., SULFICIO O. TAGUD, JR., AND THE REHABILITATION RECEIVER FOR NEGROS NAVIGATION CO., INC., respondents.

D E C I S I O N

NACHURA, J p:

Before us are two consolidated cases, docketed as G.R. No. 163156 and G.R. No. 166845, which were filed by petitioners Negros Navigation Co., Inc. (NNC) and Tsuneishi Heavy Industries (Cebu), Inc. (THI), respectively. The first is a petition for certiorari and prohibition assailing the April 29, 2004 Resolution 1 of the Court of Appeals (CA) in CA-G.R. SP No. 83526. The second is a petition for review on certiorari, contesting the October 6, 2004 Decision 2 and January 24, 2005 Resolution 3of the CA in the same case. EaDATc

The Facts

The undisputed facts are as follows:

NNC is a shipping company that is primarily engaged in the business of transporting through shipping vessels, passengers and cargoes at various ports of call in the country. 4 THI, on the other hand, is engaged in the business of shipbuilding and repair. 5 NNC engaged the services of THI for the repair of its vessels.

On February 9, 2004, THI filed a case for sum of money and damages with prayer for issuance of writ of attachment against NNC before the Regional Trial Court of Cebu (Cebu RTC), docketed as Civil Case No. CEB-29899 entitled "Tsuneishi Heavy Industries (Cebu), Inc. v. Negros Navigation

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Co., Inc." The action is based on the unpaid services for the repair of NNC's vessels, otherwise known as repairman's lien.

On March 5, 2004, the Cebu RTC issued an Order 6 granting the issuance of a writ of preliminary attachment against the properties of NNC. 7 It reasoned that based on the affidavit in support of the application for the writ, NNC committed fraud in contracting the debt or in incurring the obligation upon which the action was brought, thus, justifying the issuance of the writ 8 as mandated by Section 1 (d) of Rule 57. It added that the repairman's lien of THI constituted a superior maritime lien that is enforceable by suit in rem, as decreed by Presidential Decree No. 1521 (PD 1521). 9

On March 12, 2004, by virtue of the writ of preliminary attachment, Sheriff Rogelio T. Pinar levied on one of the vessels of NNC, the M/V St. Peter the Apostle. 10

On March 29, 2004, NNC filed a Petition for Corporate Rehabilitation with Prayer for Suspension of Payments 11 with the RTC of Manila (Manila RTC), Branch 46, which was docketed as Special Proceeding No. 0409532. The Manila RTC granted the NNC's petition and issued a Stay Order 12 on April 1, 2004. The said Order reads:

Petitioner Negros Navigation Co., Inc. filed a Petition alleging that it is a domestic corporation with principal place of business at Pier 2, North Harbor, Tondo, Manila; that since its incorporation, it had been very viable and financially profitable; that because of the Asian Currency Crisis and the devaluation of the Peso, it found itself in difficulty in paying its obligations with creditors; that as a consequence, petitioner foresees its inability to meet its obligations as they fall due; that since the obligations would not be met, complications and problems will arise that will impair and affect the operation of the corporation and its effort to rehabilitate its business; that one of its creditors, Tsuneishi Heavy Industries, Inc., already attached one shipping vessel of the corporation; and other creditors are threatening to sue; but despite the foregoing, petitioner still foresee the prospect of paying its debts if only given a "breathing spell". Hence, it is presenting a Rehabilitation Plan for approval of its creditors as well as this Court.

Finding the Petition, together with its annexes, sufficient in form and substance, the Court hereby:

1.Appoints Mr. Sulficio O. Tagud, Jr. as Rehabilitation Receiver with a bond in the amount of PhP150,000.00;

2.Stays the enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against the petitioner, its guarantors and sureties not solidarily liable with the debtor;

3.Prohibits petitioner from selling, encumbering, transferring, or disposing in any manner any of its properties, except in the ordinary course of business;

4.Prohibits petitioner from making any payment of its liabilities outstanding as of the date of filing of the petition;

5.Prohibits the debtor's suppliers of goods or services from withholding supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services and goods supplied after the issuance of the stay order;

6.Directs the payment in full of all administrative expenses incurred after the issuance of the stay order;

7.Fixes the initial hearing of the petition on May 7, 2004 at 8:30 A.M.;153

8.Directs petitioner to publish this Order in a newspaper of general circulation throughout the Philippines once a week for two (2) consecutive weeks;

9.Directs all creditors and all interested parties (including the Securities and Exchange Commission) to file and serve with the court and on the petitioner a verified comment on or opposition to the petition, with supporting affidavits and documents, not later than ten (10) days before the date of the initial hearing and putting them on notice that their failure to do so will bar them from participating in the proceedings; and

10.Directing the creditors and interested parties to secure from the court copies of the petition and its annexes to enable them to file their comment on or opposition to the petition and to prepare for the initial hearing of the petition.

The Rehabilitation Receiver, Mr. Sulficio O. Tagud, Jr., is requested to submit his oath of office within ten (10) days from receipt of this Order.

IT IS SO ORDERED. 13

Upon the issuance of the stay order by the Manila RTC, NNC filed a Manifestation and Motion to Suspend Proceedings and to Lift Preliminary Attachment with the Cebu RTC. 14

On April 5, 2004, THI filed an Amended Complaint 15 in the Cebu RTC. In the amended complaint, THI impleaded the following vessels of NNC as co-defendants in the suit: M/V San Sebastian, M/S Princess of Negros, M/V Nossa Senhora (Nuestra Señora) De Fatima, M/V St. Peter the Apostle, M/V Santa Ana and M/V San Paolo. 16THI prayed for the following in the amended complaint:

WHEREFORE, it is respectfully prayed that:

1.An ex-parte writ of preliminary attachment/arrest order be issued directing the sheriff to attach defendant's properties not exempt from execution as security for the satisfaction of the judgment in this action, and/or arrest the defendant vessels, upon approval by the Court of an appropriate attachment/arrestbond in accordance with the Rules of Court.

2.It is further respectfully prayed that after trial, judgment be rendered in favor of the plaintiff and against the defendant, Negros Navigation ordering the latter to pay the amount of P104,464,000.00 plus interest and penalties, and in satisfaction thereof and/or to ensure the same:

a.In the   in personam   action, attaching the assets of defendant Negros Navigation, including the vessel, M/V St. Joseph; and

b.In the   in rem   action, an order/warrant of arrest of the Vessels based on plaintiff's lien which arose from repairs and dry docking furnished by plaintiff to the following:

a)San Sebastian-P2,212,925.00

b)Princess of Negros-21,389,575.00

c)Nuestra Sra. De Fatima-3,743,250.00

d)St. Peter the Apostle-43,483,000.00

e)Sta. Ana-264,000.00

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f)San Paolo-33,371,250.00

———————

TOTALP104,464,000.00

============

be issued ex-parte and, after hearing, judgment be rendered ordering the sale at public action of the Vessels, including all their accessories, equipments, riggings and appurtenances, and, under the manner provided for by law.

3.Attorney's fees in an amount not less than P2,000,000.00 plus refund of docket fees, bond premiums and litigation expenses of no less thanP2,000,000.00.

4.Costs of suit.

Plaintiff prays for such other reliefs, cumulative and/or alternative, as this Honorable Court may deem just and equitable under the premises. 17

On April 6, 2004, the Cebu RTC issued two (2) Orders. The first was an Order 18 admitting the amended complaint as a matter of right since NNC had not yet filed a responsive pleading when the same was filed. The second was an Order 19 for the arrest of the vessels of NNC in the in rem aspect of the case. The fallo of the Order reads:

WHEREFORE, in view of the foregoing, the sheriff, or other proper officers of this court and such other person(s) as they may deputize, is/are hereby directed to arrest and detain the following vessels: M/V San Sebastian, M/S Princess of Negros, M/V Nossa Senhora de Fatima (Nuestra Senora de Fatima), M/V St. Peter the Apostle, M/V Sta. Ana and M/V San Paolo. The Philippine Ports Authority, the Philippine Coast Guard, the Maritime Industry Authority (MARINA), the Philippine National Police, the National Bureau of Investigation and other law enforcement agencies and all other government agencies and instrumentalities are hereby ordered to assist. Assistance shall include but not be limited to preventing the vessel from sailing or trading except as this admiralty court shall direct. Keep the vessels in custody until further order of this court, sitting as an admiralty court.

IT IS SO ORDERED.

On April 12, 2004, NNC's Rehabilitation Receiver filed with the Manila RTC a Motion 20 for the clarification of the stay order. It sought to confirm whether the claim sought to be enforced by THI against the vessels of NNC is covered by the stay order. On the same date, the Manila RTC issued an Order 21 addressing the said motion. The pertinent portion of the Order reads:

The Interim Rules of Procedure on Corporate Rehabilitation does not distinguish the kind of claims covered, whether in rem or in personam, due or not due. Hence, when the law does not distinguish, courts ought not to distinguish. So the stay order applies to all CLAIMS.

SO ORDERED. 22

On April 13, 2004, NNC filed a Motion to Suspend Proceedings and to Lift the Writ of Attachment and Arrest Orders 23 before the Cebu RTC by virtue of the April 12, 2004 Order of the Manila RTC. However, on April 29, 2004, the CA issued the Resolution 24 assailed in what is before this Court as G.R. No. 163156, wherein the appellate court temporarily restrained the implementation of

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the Orders of the Manila RTC dated April 1, 2004 and April 12, 2004. The pertinent portion of the assailed Resolution reads:

To preserve the status quo and so as not to render ineffectual and nugatory the judgment that will be rendered in this petition, a temporary restraining order valid for sixty (60) days is issued enjoining respondents and all persons acting for them and on their behalf or third persons from enforcing or implementing the Orders dated April 1, 2004 and April 12, 2004 of the public respondent.

SO ORDERED. 25

From this CA Resolution, NNC sought recourse before us. On May 4, 2004, this Court in G.R. No. 163156 issued a Temporary Restraining Order, 26 the pertinent portion of which reads:

NOW, THEREFORE, YOU, RESPONDENTS are REQUIRED to file comment on the petition within ten (10) days from notice, and RESTRAINED from implementing the Court of Appeals resolution dated 29 April 2004, which issued a temporary restraining order in CA-GR SP No. 83526 entitled "Tsuneishi Heavy Industries (CEBU), Inc. vs. Hon. Artemio S. Tipon, Presiding Judge, Regional Trial Court, Manila, Br. 46, Negros Navigation Co., Inc. and Sulficio O. Tagud, Jr." enjoining the implementation of the Orders dated 1 April 2004 and 12 April 2004 of the Regional Trial Court of Manila, Br. 46 in SP Proc. No. 04-109532, effective immediately and continuing until further orders from this Court, and YOU, PETITIONER, are ordered to POST a BOND in the amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00) in cash or surety issued by a reputable bonding company of indubitable solvency with terms and conditions acceptable to this Court within five (5) days from notice hereof, otherwise this temporary restraining order shall be rendered of no force and effect.

On October 6, 2004, the CA issued the Decision 27 assailed in what is now G.R. No. 166845, denying the petition of THI that sought to annul and enjoin the enforcement and implementation of the Orders of the Manila RTC dated April 1, 2004 and April 12, 2004. The fallo of the Decision reads:

WHEREFORE, in view of the foregoing, the instant petition is DENIED DUE COURSE and is DISMISSED for lack of merit.

SO ORDERED. 28

THI filed a motion for reconsideration. The same was denied in a Resolution 29 dated January 24, 2005. Hence, this petition in G.R. No. 166845.

The Issues

NNC, in G.R. No. 163156, presented the sole issue of whether the CA committed grave abuse of discretion amounting to lack or excess of jurisdiction in issuing the Resolution dated April 29, 2004 embodying the temporary restraining order which enjoined the implementation of the Orders of the Manila RTC dated April 1, 2004 and April 12, 2004. 30

On the other hand, THI, in G.R. No. 166845, assigned the following errors in the decision and resolution of the CA:

A.The CA Decision erred in ruling that neither THI's enforcement/the efficacy of its maritime liens against the Vessels nor the Admiralty Court's jurisdiction over those liens is impaired by the Stay Orders issued by the Manila RTC. 31

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B.The CA Decision, it is respectfully submitted, gravely erred in ruling that THI's maritime liens are covered by, and are subject to the Manila RTC's jurisdiction in, [NNC's] rehabilitation proceedings. 32

The Ruling of the CourtIn G.R. No. 163156

The issue presented by NNC in G.R. No. 163156 was rendered moot and academic by the promulgation of the CA Decision and Resolution dated October 6, 2004 and January 24, 2005, respectively. We find it unnecessary to discuss it extensively because the arguments presented by NNC and THI in support of their respective positions are, ultimately, the very same issues we now resolve in G.R. No. 166845.

In G.R. No. 166845

On the first issue, THI maintains that its maritime liens against the vessels of NNC were impaired by the issuance of the stay order. THI argues that the issuance of the stay order by the Manila RTC, acting as rehabilitation court, was erroneous considering that maritime liens cannot be enforced, divested, and otherwise affected or dealt with except by an admiralty court in an admiralty proceeding in rem. THI cited various foreign jurisprudence to the effect that maritime liens are enforceable only by a suit in rem. 33 It further averred that the mere suspension of the in rem proceedings in the admiralty case prejudiced its substantive rights under Presidential Decree (PD) 1521. 34

The argument of THI is misplaced. There is no conflict as to which law should apply to the case at bench. THI wishes to impress this Court that its claim for repairman's lien is a maritime lien and, accordingly, may be enforced only in a proceeding in rem. The Court agrees that PD 1521 is the governing law concerning its maritime lien for the services it rendered to NNC. However, when NNC filed a petition for corporate rehabilitation and suspension of payments, and the Manila RTC found that the petition was sufficient in form and in substance and appointed the rehabilitation receiver, the admiralty proceeding was appropriately suspended in accordance with Section 6 of the Interim Rules on Corporate Rehabilitation. 35

Rehabilitation contemplates continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. 36 The purpose of rehabilitation proceedings is precisely to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings. The rehabilitation of a financially distressed corporation benefits its employees, creditors, stockholders and, in a larger sense, the general public. 37

The governing law concerning rehabilitation and suspension of actions for claims against corporations is PD 902-A, as amended. Republic Act No. 8799 (RA 8799), otherwise known as The Securities Regulation Code, amended Section 5 of PD 902-A, thereby transferring to the Regional Trial Courts the jurisdiction of the Securities and Exchange Commission (SEC) over cases, among others, involving petitions of corporations, partnerships or associations to be declared in the state of suspension of payments where the corporation, partnership or association possesses property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due, or where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the management of a rehabilitation receiver or a management committee. THADEI

The Court adopted the Interim Rules of Procedure on Corporate Rehabilitation on December 15, 2000, and these rules apply to petitions for rehabilitation filed by corporations, partnerships, and associations pursuant to PD 902-A.

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PD 902-A 38 mandates that upon appointment of a management committee, rehabilitation receiver, board or body, all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended. PD 902-A does not make any distinction as to what claims are covered by the suspension of actions for claims against corporations under rehabilitation. No exception is made therein in favor of maritime claims. Thus, since the law does not make any exemptions or distinctions, neither should we. Ubi lex non distinguit nec nos distinguere debemos.

The justification for the suspension of actions or claims, without distinction, pending rehabilitation proceedings is to enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extra-judicial interference that might unduly hinder or prevent the "rescue" of the debtor company. To allow such other actions to continue would only add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the corporation instead of being directed toward its restructuring and rehabilitation. 39

It is undisputed that THI holds a preferred maritime lien over NNC's assets by virtue of THI's unpaid services. The issuance of the stay order by the rehabilitation court does not impair or in any way diminish THI's preferred status as a creditor of NNC. The enforcement of its claim through court action was merely suspended to give way to the speedy and effective rehabilitation of the distressed shipping company. Upon termination of the rehabilitation proceedings or in the event of the bankruptcy and consequent dissolution of the company, THI can still enforce its preferred claim upon NNC.

PD 902-A was designed not only to salvage an ailing corporation but also to protect the interest of investors, creditors and the general public. Section 6 (d) of PD 902-A provides: "the management committee or rehabilitation receiver, board or body shall have the power to take custody of, and control over, all the existing assets and property of such entities under management; to evaluate the existing assets and liabilities, earnings and operations of such corporations, partnerships or other associations; to determine the best way to salvage and protect the interest of the investors and creditors; to study, review and evaluate the feasibility of continuing operations and restructure and rehabilitate such entities if determined to be feasible by the [court]. It shall report and be responsible to the [court] until dissolved by order of the [court]: Provided, however, That the [court] may, on the basis of the findings and recommendation of the management committee, or rehabilitation receiver, board or body, or on its own findings, determine that the continuance in business of such corporation or entity would not be feasible or profitable nor work to the best interest of the stockholders, parties-litigants, creditors, or the general public, order the dissolution of such corporation entity and its remaining assets liquidated accordingly. The management committee or rehabilitation receiver, board or body may overrule or revoke the actions of the previous management and board of directors of the entity or entities under management notwithstanding any provision of law, articles of incorporation or by-laws to the contrary."

When a distressed company is placed under rehabilitation, the appointment of a management committee follows to avoid collusion between the previous management and creditors it might favor, to the prejudice of the other creditors. The stay order is effective on all creditors of the corporation without distinction, whether secured or unsecured. All assets of a corporation under rehabilitation receivership are held in trust for the equal benefit of all creditors to preclude one from obtaining an advantage or preference over another by the expediency of attachment, execution or otherwise. As between the creditors, the key phrase is equality in equity. Once the corporation threatened by bankruptcy is taken over by a receiver, all the creditors ought to stand

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on equal footing. Not any one of them should be paid ahead of the others. This is precisely the reason for suspending all pending claims against the corporation under receivership. 40

Rizal Commercial Banking Corporation v. Intermediate Appellate Court, 41 promulgated by the Court en banc before the effectivity of the Interim Rules on Corporate Rehabilitation, is still valid case law up to the present. It enumerates the guidelines in the treatment of claims involving corporations undergoing rehabilitation, viz.:

1.All claims against corporations, partnerships, or associations that are pending before any court, tribunal, or board, without distinction as to whether or not a creditor is secured or unsecured, shall be suspended effective upon the appointment of a management committee, rehabilitation receiver, board, or body in accordance with the provisions of Presidential Decree No. 902-A.

2.Secured creditors retain their preference over unsecured creditors, but enforcement of such preference is equally suspended upon the appointment of a management committee, rehabilitation receiver, board, or body. In the event that the assets of the corporation, partnership, or association are finally liquidated, however, secured and preferred credits under the applicable provisions of the Civil Code will definitely have preference over unsecured ones. 42

On the second issue, THI argues that the Manila RTC, in granting the stay order, divested the Cebu RTC, which is acting as an admiralty court, of its jurisdiction over the maritime case of THI. It insists that its maritime liens over the vessels of NNC must be upheld, notwithstanding NNC's rehabilitation proceedings. It stresses that in in rem proceedings to enforce maritime liens, the vessels alone may be impleaded as defendants. The vessels themselves answer for the liens, and lienholders like THI have the substantive statutory right under PD 1521 to insist on the vessels' responsibility because an action in rem is a proceeding against the ship itself. Furthermore, it emphasizes that a maritime lien is not affected by bankruptcy or reorganization, citing Gilmore and Black as reference. 43

True enough, a maritime lien is not affected by bankruptcy or reorganization. However, in the instant case, we are not dealing with bankruptcy or reorganization; rather, we are confronted with NNC's rehabilitation. If we follow the argument of THI and allow the continued enforcement of its claims against NNC, we would, in effect, violate provisions of PD 902-A. To reiterate, the rationale behind PD 902-A is to effect a feasible and viable rehabilitation of an ailing corporation.

There is no conflict between PD 1521 and PD 902-A. The Manila RTC acting as a rehabilitation court merely suspended the proceedings in the admiralty case in the Cebu RTC. It did not divest the Cebu RTC of its jurisdiction over the maritime claims of THI against NNC. The preferred maritime lien of THI can still be enforced upon the termination of the rehabilitation proceedings, or if it such be unsuccessful, upon the dissolution of the corporation.

WHEREFORE, in view of the foregoing disquisitions, judgment is rendered as follows:

(1)In G.R. No. 163156, the petition is DISMISSED for being moot and academic; and

(2)In G.R. No. 166845, the petition is DENIED for lack of merit.

SO ORDERED.

Ynares-Santiago, Austria-Martinez, Chico-Nazario and Reyes, JJ., concur.

[G.R. No. L-12138. February 27, 1962.]

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OVERSEAS FACTORS, INC. and GERTRUDES CARLOS, plaintiffs-appellees, vs. SOUTH SEA SHIPPING CO., LTD. A. MAGSAYSAY INC., The CAPTAIN AND CREW OF THE S. S. OCEAN TRADER and The COLLECTOR OF CUSTOMS OF MANILA, defendants-appellants. SOUTH SEA SURETY & INSURANCE CO., INC., cross-claimant, vs. OVERSEAS FACTORS, INC. and GERTRUDES CARLOS, cross-defendants. NATIONAL RICE AND CORN CORPORATION, intervenor.

Paredes, Balcoff & Poblador and Angel S. Alvir for plaintiffs-appellees.

Ramon T. Oben and Solicitor General for defendants-appellants.

Romualdo Constantino for cross-claimant.

Godofredo L. Guzman for intervenor.

SYLLABUS

1.SHIP AND SHIPPING; FREIGHT INCLUDED IN GOODS' PURCHASE PRICE; CARRIER'S LIEN EXIST IF FREIGHT WAS NOT PAID. — The fact that the freight was already included in the purchase price of the goods paid by the purchaser to the appellees did not free the cargo of rice from the carrier's lien as provided for in article 665 of the Code of Commerce, if the freight has not yet been fully paid by the charterer.

D E C I S I O N

PADILLA, J p:

On 3 and 9 September 1954 the National Rice and Corn Corporation and the Overseas Factors, Inc. entered into two contracts whereby the latter undertook to supply the former with 5,000 metric tons of Kangni rice at P.51 per ganta and 5,000 metric tons of Joshi rice at P.49 per ganta (Exhibits A & B). On 10 September 1954 the National Rice and Corn Corporation established for its account with the Philippine National Bank in Manila two irrevocable letters of credit (Nos. 62655 & 62656) in the amounts of $529,125 and $508,375, United States currency, in favor of the Pakistan Development Corporation, Ltd., Karachi, Pakistan (Exhibits A-2 & B-2).

On 30 October 1954, S. M. Yeung, authorized representative of the South Sea Shipping Co., Ltd., wrote to José W. Diokno, authorized representative of the Overseas Factors, Inc., in Karachi, Pakistan, enumerating the terms and conditions of the charter party they have agreed upon for shipment of the rice to be imported by the Overseas Factors, Inc. from Pakistan aboard the SS Ocean Trader owned by the South Sea Shipping Co., Ltd. At the foot of the letter, José W. Diokno affixed his signature signifying his intention to confirm the terms and conditions therein enumerated (Exhibit 10). On the same date, 30 October 1954, S. M. Yeung, in behalf of the South Sea Shipping Co., Ltd., and Chung Kien Tieng, in behalf of the Overseas Factors, Inc., entered into a formal contract of charter party in Karachi, Pakistan, incorporating the terms and conditions enumerated in the letter (Exhibit 11). (See Exhibit C.) On 12 November 1954 the terms and conditions of the charter party regarding the rate and payment of freight were amended by the parties in Hongkong (Exhibit 12).

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On 4 November 1954 Juan A. Magsino, in behalf of Overseas Factors, Inc. entered into an agreement with Abdulaye A. Badat, sole proprietor of Ivlom Corporation, in Karachi, Pakistan, whereby the said corporation undertook to supply the Overseas Factors, Inc., with 5,000 metric tons of Kangni rice of the quality and specifications enumerated in Philippine National Bank Letter of Credit No. 62655 (Exhibit 6). Badruddin H. Mavani undertook to supply the Overseas Factors, Inc, with the needed Joshi rice.

On 5 November 1954 the Overseas Factors, Inc. and Gertrudes Carlos, co-financier of the former in its contract with the National Rice and Corn Corporation to supply it with the needed rice, jointly and severally applied to the South Sea Surety & Insurance Co., Inc. to act as surety upon a bond demanded by the South Sea Shipping Co., Ltd. in the amount of P315,000 to guarantee the payment by the charterers in Hongkong of the freight, demurrage, dead freight and other losses that might arise (Exhibit B-South Sea Surety & Insurance Co., Inc.). On the same date, 5 November 1954, the Overseas Factors, Inc., as principal, and Gertrudes Carlos, as co-principal, and the South Sea Surety & Insurance Co., Inc., as surety, executed a performance bond in the amount of P315,000 in favor of the South Sea Shipping Co., Ltd. to guarantee the full payment by the charterers at Hongkong of all freight, demurrage, dead freight and other losses that might arise, within 14 days from the date of departure of the vessel from Karachi, Pakistan (Exhibits 14; A-South Sea Surety & Insurance Co., Inc.)

From 16 to 23 November 1954, 2,567.6053 metric tons gross of Joshi rice and from 20 to 25 November 1954, 5,054.0662 metric tons gross of Kangni rice or a total of 7,621.6715 metric tons of rice were loaded on board the SS Ocean Trader in Karachi, Pakistan (Exhibits Q- Naric; E-Naric).

On 25 and 29 November the bills of lading covering the said shipments of rice duly signed by the shipper's agent were issued in the name of the Philippine National Bank, Manila, as consignee. It appears in the two bills of lading that the party to be notified upon arrival in Manila was the National Rice and Corn Corporation (Exhibits D & E).

On 25 November 1954 the SS Ocean Trader sailed from Karachi, Pakistan (Exhibits 1 & 17) and arrived in Manila on 18 December 1954 (Exhibit 15). The captain and crew members of the SS Ocean Trader refused to unload the cargo of rice unless the balance of the freight and other charges due were paid by the charterers. Hence an action was brought on 29 December 1954 in the Court of First Instance of Manila praying the Court to direct the defendants to convert the amount in rupees paid by the plaintiffs in Karachi, Pakistan, into British sterling pounds, computed at the legal rate of exchange as allowed by the Government of Pakistan; to deliver to the plaintiffs the bills of lading of the cargo of rice; to permit the unloading by the plaintiffs of the cargo of rice from the SS Ocean Trader pending trial of the case; to desist or refrain from interfering with such unloading upon the filing of an additional surety bond, if necessary, in an amount that the Court may fix to answer for damages that the defendants may suffer as a result of such injunction, and to pay the costs; and the Collector of Customs to see to it that the cargo of rice from the SS Ocean Trader be unloaded. Plaintiffs also pray that the demurrages sought to be collected by the defendants be computed at the rate L300 and not at L700 a day; and for other just and equitable relief (civil No. 24972). The defendants answered the complaint and set up a counterclaim of P316,364.38 for freightage, demurrage, charges for detention and other expenses of the vessel while on detention. The plaintiffs controverted the defendants' counterclaim. The National Rice and Corn Corporation filed a complaint in intervention to protect its interest and the South Sea Surety & Insurance Co., Inc. filed a cross-claim against the plaintiffs.

The other pleadings filed by the parties and orders issued by the Court in connection with the disposition of the cargo of rice in question need not be stated for the determination of the case. 1

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After trial, the Court rendered judgment, the dispositive part of which is as follows:

IN VIEW OF THE FOREGOING, the Court believes and so holds that the preponderance of evidence is in favor of the plaintiffs and against the defendant South Sea Shipping Co., Ltd. The total amount of 369,000 Pakistan rupees received by S. M. Yeung was in full payment of the transportation of the rice in question from Karachi to Manila, and that the delay in the unloading of such rice in Manila was not due to plaintiffs' fault.

The claim for lien on the shipment of rice has no legal basis for the reason that the freight had already been paid in Karachi, Pakistan, before such shipment arrived in Manila.

The injunction bond filed by plaintiffs as well as the performance bond executed to guaranty the payment of freight are hereby ordered cancelled.

The complaint with respect to defendants A. Magsaysay, Inc., the Captain and the Crew of the S.S. Ocean Trader, and the Collector of Customs of Manila, is hereby dismissed, it appearing that they have nothing to do with the controversy between plaintiff Overseas Factors, Inc. and South Sea Shipping Co. Ltd.

Defendants' counterclaim is hereby dismissed.

Defendant South Sea Shipping Co. Ltd. shall pay the costs.

SO ORDERED.

Manila, Philippines, December 28, 1956.

The defendants South Sea Shipping Co., Ltd. and A. Magsaysay, Inc. have appealed.

In the letter written by S. M. Yeung, authorized representative of the appellant shipping company, to José W. Diokno, authorized representative of the appellees, on 30 October 1954 in Karachi, Pakistan, summing up the principal terms and conditions of the charter party agreed upon by them, it appears that they have agreed, among others, as follows:

FREIGHT:Sterling one hundred shillings (100) permetric ton gross weight, F10 and freestowed;

PAYMENTOF FREIGHT:Charterers to pay full freight to the Owners atHongkong in British Pound Sterling uponsigning of bill or bills of lading, ship lost ornot lost;

PERFORMANCEBOND:Charterers to arrange a performance bond inHongkong satisfactory to the Owners atHongkong, latest before noon on the 1stNovember 1954 to guarantee the dueperformance of this charter and fullpayment of all freight at Hongkong withinfourteen (14) days from date of vessel'sdeparture from Karachi. Charter Party Form(as adopted 1922). (Exhibit 10.)

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On the same date, 30 October 1954, the parties executed in Karachi, Pakistan, a formal contract of charter party in a printed form of the uniform general charter adopted by the documentary committee of the Chamber of Shipping of the United Kingdom, as revised in 1922. Chung Kien Tieng signed in behalf of the appellees and Yeung Siu Man in behalf of the appellant shipping company. The pertinent terms of the contract are:

Rate of Freight:Sterling One hundred Shillings (100/-) per metric ton, free in, free out and free stowed.

Payment of Freight:The freight to be paid in case without discount on signing bills of lading in British Pound Sterling transferable to the Owners at Hongkong within fourteen (14) days from the date of the vessel's departure from Karachi. (Exhibit C or 11.)

On 12 November 1954 the two clauses were amended by adding the following to the first clause:

or according to Owners' option of Forty Two Pesos (Pesos 42.-) per metric tons, free in, free out and free stowed.

and the following to the second clause:or according to Owners' option of payment at Manila at the rate stated in clause No. 1. (Exhibit 12.).

In the performance bond executed and signed by the appellees in favor of the appellants, it was stipulated that —

. . . the condition of this bond is such that if the Principal and co- Principal shall well and duly comply with the conditions and stipulations enumerated in the above mentioned agreement charter and contract of charter party as well as pay all freight at Hongkong within fourteen (14) days from the date of vessel's departure from Karachi, then this obligation shall be null and void; otherwise, it shall remain in full force and effect. (Exhibits 14; A-South Sea Surety & Insurance Co., Inc.)

According to the appellant shipping company, the amount due from the appellees as freightage of the 7,621.6715 metric tons of rice at 100 shillings per metric ton was £38,108-7-1d (Exhibit 16-A) and that the appellees had paid it only £13,888-17-9d (Exhibit 1).

Juan A. Magsino testifies that be was the agent of the appellees; that he went to Karachi, Pakistan, at the instance of his principals, where he stayed for three months to take charge of screening the rice being imported by his principals, loading them on board the SS Ocean Trader and paying the freight due for their shipment to Manila; that he requested Abdulaye A. Badat, proprietor or manager of Ivlom Corporation, with whom his principals had an agreement to supply them with Kangni rice for export to Manila, to pay Yeung, the authorized representative of the appellant shipping company, the sum of 250,000 Pakistani rupees as payment for the freight due; that on 29 November 1954 he called up Yeung to go to the Philippine Legation and receive from him payment of the freight, and to bring with him the bill of lading but he answered that he could not surrender the bill of lading unless the freight was fully paid; that at about 11:00 o'clock in the morning or 12:00 o'clock noon of the same day, 29 November 1954, Badat paid to Yeung the sum of 250,000 Pakistani rupees in 100 rupee denomination in the presence of Consul General Tagakotta Sotto, Eustacio Barrera, a gentleman from T. K. Brothers, attorney Emigdio Arcilla, and the witness inside the office of the Philippine Legation in Karachi; that Yeung requested the witness to help him count the money and it took them two hours to finish counting it; that after the sum of 250,000 Pakistani rupees was received by Yeung, he surrendered to Badat the original of the bill of lading for 5,000 metric tons of Kangni rice and gave the witness a copy thereof (Exhibit D); that between 6 and 8 December 1954 the sum of L19,221-5-0 Pakistani rupees in check as payment for the freight of the Joshi rice was paid to Yeung inside the National

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Bank of India by Badruddin H. Mavani in his (the witness') presence; and that after receiving payment, Yeung delivered to Mavani the bill of lading for the Joshi rice (Exhibit E).

Appellant shipping company admits that it has received payment of the sum of L13,888-17-9d. In his letter addressed to Magsino, Yeung —

. . . acknowledges that my Head Office in Hongkong has this day, the 29th November 1954, received the sum of Sterling THIRTEEN THOUSAND EIGHT HUNDRED EIGHTY EIGHT POUNDS SEVENTEEN SHILLINGS NINE PENCE ONLY (£13,888-17-9-d) being your first partial payment of freight due to us under our charter party dated the 30th October 1954. This amount has now been credited to your freight account with us in Hongkong pending the final settlement of the aforementioned charter, without prejudice to the Bond executed by South Sea Surety Company at Manila in favor of Owners' Agents M/s A. Magsaysay, Inc., Manila for payment of full freight, etc., in Sterling at Hongkong within 14 days from 25th November 1954 being the date of departure of SS "Ocean Trader from Karachi. (Exhibit 1.)

However, the appellants deny having received the sum of £12,838-0-6d from the appellees and claim that the sum of 119,221-5-0 Pakistani rupees that Yeung received from Mavani could not be credited as part payment of the freight.

The contract between the parties is that payment shall be made in British Pound Sterling payable to the appellants in Hongkong within 14 days from date of departure of the vessel from Karachi, Pakistan, or in Philippine currency.

On 5 November 1954 Magsino wrote to Kazi & Kazi, agents of the South Sea Shipping Co., Ltd. in Karachi, requesting them to write a letter to the Shipping Controller and furnishing a copy thereof to the Food Ministry, confirming that they have booked a cargo of 2,500 tons of Joshi rice and 5,000 tons of Kangni rice to be shipped by Badruddin H. Mavani and Ivlom Corporation, respectively, to the National Rice and Corn Corporation at the rate of Sterling One Hundred Shillings per metric ton gross, so that the approval of the Government for the remittance of the freight to the South Sea Shipping Co., Ltd. in Hongkong may be obtained (Exhibit 2). In the last paragraph Magsino wrote:

We do understand quite well that your Principal, South Sea Shipping Co. Ltd., Hongkong, are not concerned or obliged in any way, under the terms of our Charter Party dated 30th October 1954 on the subject vessel, in respect of the application for the approval of remittance of freight to Hongkong, therefore we hereby confirm that your acceptance of our present request shall not prejudice the terms and conditions of the above mentioned Charter Party and shall have no effect on the Charter Party whatsoever, and we shall assume all responsibilities and consequences in this regard. (Exhibit 2-A.)

On the same date, 5 November 1954, Magsino wrote to T. K. Brothers & Co., agents of the South Sea Shipping Co., Ltd. in Hongkong, requesting them to write a similar letter to the same Government officials of Pakistan (Exhibit 3). In the last paragraph, he wrote:

This is without prejudice to the terms and conditions of the above-mentioned Charter Party entered into between South Sea Shipping Co. Ltd., Hongkong and ourselves and has no effect on the Charter Party whatsoever. (Exhibit 3-A.)

On 1 January 1955 Magsino wrote to Yeung acknowledging receipt of two signed copies of the bill of lading covering the shipment of 2,567.6053 metric tons of Joshi rice shipped by Badruddin H. Mavani on board the SS Ocean Trader consigned to the Philippine National Bank (Exhibit 4). In the second paragraph of the letter, he said:

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I find all particulars in these bills of lading to be all in order and confirm that your issuance of such bills of lading indicating only the charges of freight in conformity with Messrs. Kazi & Kazi's letter addressed to the Shipping Controller, Karachi, dated 5th November 1954 upon my written request of same date, shall not prejudice your interests in respect of our Charter Party dated 30th October 1954.

At the foot of the said letter, he stated over his signature that:

The necessity to replace the clause "Freight Payable as per C/P on steamer 'Ocean Trader"' dated 30th Oct. 1954 by the new "Freight Paid" clause upon the insistence of our shippers in order to facilitate to remit the freight officially is hereby acknowledged specifically not to prejudice your position in respect of the said charter. (Exhibit 4-A.)

In reply, on 5 January 1955 Yeung wrote to Magsino as follows:

With reference to your letter dated 1st January 1955, I beg to confirm that our agents, Messrs. Kazi & Kazi, Karachi, are now holding for your account, the sum of Rs 119,221-5-0, being freight in Pakistan Rupees equivalent to £12,838-0-6d, paid by Messrs. Badruddin H. Mavani on 2,567.6053 metric tons gross of Joshi Rice as per B/L No. 2 of SS "Ocean Trader", pending Government approval for transfer of the same to my Head Office in Hongkong in accordance with our charter party dated 30th October 1954.

While we would be glad to request Kazi & Kazi to do all the usual formalities for applying for the remittance of the total freight on your behalf, we have to inform you that it is necessary for both you shippers to approach the Government Authorities concerned for explanation of certain details before such approval for remittance of freight will be given. Therefore, in your interests, it would be advisable for you to ask your shippers to follow up the matter immediately until the permit for transfer of the freight is obtained from the State Bank. (Exhibit 5.)

In the bill of lading Exhibit E, it is written that —FREIGHT PAID IN PAKISTANI Rs. 119,221-5-0 BEING EQUIVALENT TO £12,838- 0-6d BY BADRUDDIN H. MAVANI ON ACCOUNT OF MINISTRY OF FOOD, GOVERNMENT OF PAKISTAN, KARACHI, PENDING TRANSFER TO HONGKONG. (EXHIBIT E-1.)

It is, therefore, clear that the sum of £12,838-0-6d (in British Pound Sterling) due for freight on the Joshi rice shipped on board the SS Ocean Trader has not yet been paid to the appellant shipping company by the appellees in accordance with their contract. Moreover, payment of the sum of 119,221-5-0 Pakistani rupees to Yeung made by Mavani in check was held by Kazi & Kazi merely for the account of the appellees pending Government approval for transfer to the Office of the appellant shipping company in Hongkong (Exhibit 5).

Magsino claims that the possession by any individual of British pounds sterling is outlawed in Pakistan in the same way that the possession by any person of United States dollars is prohibited in the Philippines, and for that reason it was impossible for him to have paid Yeung in British pounds sterling. If that were true, why was the first payment of 250,000 Pakistani rupees made by Abdulaye A. Badat and received by S. M. Yeung for the 5,000 tons of Kangni rice converted into £13,888-17-9d and credited by the appellant shipping company to the freight account with it in Hongkong?

Under the charter party, the appellant shipping company has the option to demand payment of the freight in British pounds sterling payable in Hongkong at the rate of 100 shillings per metric ton or P42, Philippine currency, per metric ton (Exhibits C & 12). In the appellant's answer and

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counterclaim they demand that the appellees pay them the freight at P42 per metric ton, Philippine currency. The amount due as freightage for 7,621.6715 metric tons of rice computed at P42, Philippine currency, per metric ton, is P320,110.20. Deducting therefrom the sum of L13,888.17-9d or P116,660.62, computed at P8.40 to £1 or P42 to £5 per metric ton, there is still due the appellant shipping company from the appellees the sum of P203,449.57, Philippine currency.

Clauses Nos. 5, 7, 11 and 20 of the charter party (Exhibit C) provide:

5.Cargo to be brought alongside in such a manner as to enable vessel to take the goods with her own tackle and to load the full cargo in nine (9) running days free of expense to the vessel. Charterers to procure and pay the necessary men on shore or on board the lighters to do the work there, vessel only heaving the cargo on board.

Any pieces and/or packages of cargo over two tons weight, shall be loaded, stowed and discharged by Charterers at their risk and expense.

Time shall commence at 1 p.m. on the 30th October 1954.

Time lost in waiting for berth to count as loading time.

7.Four running days on demurrage at the rate of L300. — Sterling per day or pro rata for any part of a day, payable day by day, at Hongkong to be allowed Merchants altogether at ports of loading and discharging, L100. — per day for despatch.

11.Should the cargo not be brought alongside to load (whether in berth or not) on or before the 8th Nov. 1954. Owners have the option of cancelling this contract.

20.Any dispute arising under this charter to be referred to arbitration in London, one Arbitrator to be nominated by the Owners and the other by the Charterers, and in case the Arbitrators shall not agree then to the decision of an Umpire to be appointed by them, the Award of the Arbitrators or the Umpire to be final and binding upon both parties.

The period of nine days of loading time free of expenses for the account of the vessel from 10:00 o'clock p.m., 30 October, expired at 1:00 o'clock p.m., 8 November 1954. It was only on 25 November 1954 that the vessel was fully loaded and able to sail for Manila (Exhibits 1 & 17) after a delay of seventeen days. Pursuant to clause No. 7 of the charter party (Exhibit C), four running days on demurrage shall be paid to the appellant shipping company at the rate of £300 or a total of £1,200. Computed at the rate of exchange prevailing in December 1954, which is P5.60 to L1 (50 Off. Gaz. 4744), the appellant shipping company should be paid by the appellees the sum of P6,720, Philippine currency. The demurrage for the remaining delay of thirteen days is subject to arbitration in London pursuant to clause No. 20 of the charter party (Exhibit C).

The appellees cannot be charged with L-700 a day for demurrage on the remaining thirteen days of delay because they are only answerable for that much "for all detention charges" "if the ship is so detained after loading of the cargo." (Exhibit 13) The departure of the vessel was not delayed after the cargo was finally loaded. As a matter of fact it sailed for Manila on 25 November 1954 after it was loaded.

Clause No. 6 of the charter party (Exhibit C) provides:

Cargo to be received by Merchants at their risk and expense alongside the vessel not beyond the reach of her tackle and to be discharged in seven (7) running days, free of expenses to the vessel. Time to commence at 1 p.m. if notice of readiness to discharge is

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given before noon, and at 6 a.m. next working day if notice given during office hours after noon.

Time lost in waiting for berth to count as discharging time.

The SS Ocean Trader arrived in Manila at 4:55 o'clock in the morning (1655 hours) of 18 December 1954 (Exhibit 15). The day following, 19 December, the vessel and cargo were fumigated by the health authorities. Notice of its arrival and readiness to unload the cargo was served upon the appellees by the Captain of the vessel at 10:20 o'clock in the morning of 20 December 1954 (Exhibit 15). Pursuant to clause No. 6 of the charter party (Exhibit C), the unloading was to be made in seven running days, free of expenses for the account of the vessel, beginning at 1:00 o'clock in the afternoon of 20 December and expiring at 1:00 o'clock in the afternoon of 27 December 1954. However, because of the refusal of the appellees to pay the balance of the freight and other charges, the captain and crew of the vessel refused to unload the cargo and the vessel was placed under detention from 1:00 o'clock in the afternoon of 27 December 1954 to 6:00 o'clock in the morning of 5 January 1955. During that time the cargo was unloaded pursuant to the order of the Court and deposited in the warehouse of the National Rice and Corn Corporation. The unloading was finished at 6:00 o'clock in the morning of 5 January 1955 resulting in 8 days and 17 hours of detention. Under clause No. 7 of the charter party (Exhibit C) the appellant shipping company is entitled to collect from the appellees four running days on demurrage for detention at the rate of L300 or a total of L1,200. Computed at the rate of exchange prevailing in January 1955, which is P5.60 to L1 (51 Off. Gaz 1271), the appellant shipping company should be paid by the appellees the sum of P6,720, Philippine currency. The demurrage for the remaining detention of four days and 17 hours and other charges claimed by the appellant shipping company are subject to arbitration in London pursuant to clause No. 20 of the charter party (Exhibit C).

As held by this Court in the case of National Rice and Corn Corporation vs. Macadaeg, supra, the fact that the freight was already included in the purchase price paid by it to the appellees did not free the cargo of rice from the carrier's lien provided for in article 665 of the Code of Commerce, if the freight has not yet been fully paid by the charterer. Moreover, clause No. 8 of the charter party (Exhibit C) provides:

Owners shall have a lien on the cargo for freight, dead-freight, demurrage and damages for detention. Charterers shall remain responsible for dead-freight and demurrage (including damages for detention), incurred at port of loading. Charterers shall also remain responsible for freight and demurrage (including damages for detention) incurred at port of discharge, but only to such extent as the Owners have been unable to obtain payment thereof by exercising the lien on the cargo.

The contention that the omission of this clause in the letter dated 30 October 1954 where the principal terms and conditions of the charter party were enumerated by Yeung, the shipowner's representative, and confirmed by Diokno, the charterer's representative, and that in lieu thereof a clause requiring the charterer to file a performance bond in favor of the shipowners, amounted to a waiver of the shipowners' or carrier's lien on the cargo is untenable. The last part of the letter (Exhibit 10), which says:

This agreement is subject to the arrangement of the performance bond being computed before the time as specified above. Two copies of the formal Charter Party shall be signed immediately upon confirmation of the performance bond being established at the stipulated bank,

shows that the letter Exhibit 10 was written before the formal contract of charter party (Exhibit C) was executed by the parties. Hence it cannot be said that the shipowners waived their lien provided for in the formal contract of charter party (Exhibit C).

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The addendum of the charter party contract (Exhibit C) executed by the parties on 12 November 1954 in Hongkong varying the clauses on the rate and payment of freight without the consent of the surety (Exhibit 12) was a novation of the contract. For that reason the surety's obligation in the performance bond was extinguished (Exhibits 14; A-South Sea Surety & Insurance Co., Inc.).

The foregoing notwithstanding, the Court is of the opinion that the sum of Rs119,221-5-0 equivalent to £12,838-0-6d paid by Badruddin H. Mavani for the account of the appellees to pay the freight of 2,567.6053 metric tons gross of Joshi rice and received by S. M. Yeung as agent or representative of the appellant shipping company should be set off against the sum due the said appellant shipping company for freight and demurrages, at the official rate of exchange in Karachi, Pakistan, on the day of receipt thereof by the agent of the appellant shipping company, for aside from the fact that the latter should not be allowed to enrich itself at the expense of the appellees, the forfeiture of the amount to be deposited with the Chartered Bank of India, Australia and China in Karachi to the credit of the appellant shipping company, offered by Magsino, the agent of the appellees, to pay the freight of the cargo of rice (Exhibits 7 and 7-A) was not accepted by S. M. Yeung, the agent of the shipowners. (See p. 29, appellants' brief.) And the difference after the set off in favor of any party shall bear the legal rate of interest, to wit: if in favor of the appellees, from the date of receipt of the amount in Karachi, Pakistan, by the agent of the appellant shipping company; or, if in favor of the appellant shipping company, from the date of the filing of its counterclaim for the amount of freight and demurrages.

The judgment appealed from is modified by ordering the appellees to pay the appellant shipping company the sums of P203,449.57, the balance of the freightage still unpaid, P6,720 as demurrage in loading the cargo and P6,720 as demurrage for detention of the vessel, without prejudice to any amount sought to be collected for demurrage which is to be submitted to arbitration in London, against which the equivalent amount in Philippine currency of the sum of L12,838-0-6d or Rs119,221-5-0 as above stated is set off; and holding that the appellant shipping company did not lose its lien on the cargo of rice, without pronouncement as to costs. The complaint and the complaint in intervention are dismissed as to the other defendant appellants and the counterclaim against the appellee South Sea Surety & Insurance Co. and the latter's cross-claim are likewise dismissed.

Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and De Leon, JJ., concur.

[G.R. No. 95900. July 23, 1992.]

JULIUS C. OUANO, petitioner, vs. COURT OF APPEALS, MARKET DEVELOPERS, INC. JULIAN O. CHUA, SUPREME MERCHANT CONSTRUCTION SUPPLY, INC., JOHNNY ANG, alias Chua Pek Giok, and FLORENTINO RAFOLS, JR., respondents.

Ramon B. Ceniza for petitioner.

Cornelio T. Falgui for SMCSI and Johnny Ang.

Zosa & Quijano Law Offices for MADE and Chua.

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SYLLABUS

1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS; BINDING ONLY BETWEEN CONTRACTING PARTIES; CASE AT BAR. — It is a basic principle in civil law that, with certain exceptions not obtaining in this case, a contract can only bind the parties who had entered into it or their successors who assumed their personalities or their juridical positions, and that, as a consequence, such contract can neither favor nor prejudice a third person. (see Art. 1311, Civil Code) The obligation of contracts is limited to the parties making them and, ordinarily, only those who are parties to contracts are liable for their breach. Parties to a contract cannot thereby impose any liability on one who, under its terms, is a stranger to the contract, and, in any event, in order to bind a third person contractually, an expression of agent by such person is necessary.

2.ID.; ID.; LEASE; SUB-LEASE; CONSTRUED. — In a sublease arrangement, the basic principles of which are applicable in the present case, there are two distinct leases involved, that is, the principal lease and the sublease. There are two juridical relationships which co-exist and are intimately related to each other, but which are nonetheless distinct one from the other. In such arrangement, the personality of the lessee qua lessee does not disappear; his rights and obligations vis-a-vis the lessor are not passed on to nor acquired by the sublessee. The lessor is in the main and except only in the instances specified in the Civil Code, a stranger to the relationship between the lessee-sublessor and the sublessee. The lessee-sublessor is not an agent of the lessor nor is the lessor an agent of the lessee-sublessor. The sublessee has no right or authority to pay the sublease rentals to the lessor, said rentals being due and parable to the lessee-sublessor. (Blas vs.Court of Appeals, et al., 180 SCRA 60 [1989]) MADE was, therefore, under no obligation to pay petitioner since the freightage was payable to Rafols.

3.ID.; ID.; ID.; ID.; EXTENT OF LIABILITY OF SUBLESSEE TO LESSOR; CASE AT BAR. — Although it is provided in Article 1652 of the Civil Code that the sublessee is subsidiarily liable to the lessor for any rent due from the lessee, the sublessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the lessor.

4.COMMERCIAL LAW; MARITIME TRANSPORTATION; CHARTER PARTY; KINDS. — A charter party may, among other classifications, be of two kinds: One is where the owner agrees to carry a cargo which the charterer agrees to provide, and the second is where there is an entire surrender by the owner of the vessel to the charterer, who hires the vessel as one hires a house, takes her empty, and provides the officers and provisions, and, in short, the entire outfit. In such a contract, the charterer is substituted in place of the owner and becomes the owner for the voyage. This second type is also known as a bareboat charter or otherwise referred to as a demise of the vessel. (Litonjua Shipping Co. vs. National Seamen Board, et al., 176 SCRA 189 [1989]; Maritime Agencies & Services, Inc. vs. Court of Appeals, et al., 187 SCRA 346 [1990])

5.ID.; ID.; ID.; BAREBOAT CHARTER; EXPLAINED; CASE AT BAR. — In a charter party of the second kind, not only the entire capacity of the ship is let but the ship itself, and the possession is passed to the charterer. The entire control and management of it is given up to him. The general owner loses his lien for freight, but the lien itself is not destroyed, the charterer is substituted in his place, in whose favor the lien continues to exist when goods are taken on freight. The general owner, however, has no remedy for the charter of his vessel but his personal action on the covenants of the charter party. It is a contract in which he trusts in the personal credit of the charterer. Therefore, where the charter constitutes a demise of the ship and the charterer is the owner for the voyage, and that is the kind of charter party involved in the instant case, the general owner has no lien on the cargo for the hire of the vessel, in the absence of an express provision therefor as in the case at bar.

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6.ID.; ID.; FREIGHT CHARGES' LIEN ON CARGO FOR UNPAID FREIGHT; UNCONDITIONAL RELEASE OF CARGO CONSTITUTES WAIVER THEREOF. — even on the assumption that petitioner had a lien on the cargo for unpaid freight, the same was deemed waived when the goods were unconditionally released to the consignee at the port of destination. A carrier has such a lien only while it retains possession of the goods, so that delivery of the goods to the consignee or a third person terminates, or constitutes a waiver of, the lien. The lien of a carrier for the payment of freight charges is nothing more than the right to withhold the goods, and is inseparably associated with its possession and dependent upon it. The shipowner's lien for freight is not in the nature of a hypothecation which will remain a charge upon the goods after he has parted with possession, but is simply the right to retain them until the freight is paid, and is therefore lost by an unconditional delivery of the goods to the consignee.

7.ID.; ID.; ID.; ID.; LIMITED FOR THIRTY (30) DAYS. — Under Article 667 of the Code of Commerce, the period during which the lien shall subsist is twenty (20) days. Parenthetically, this has been modified by the Civil Code, Article 2241 whereof provides that credits for transportation of the goods carried, for the price of the contract and incidental expenses shall constitute a preferred claim or lien on the goods carried until their delivery and for thirty (30) days thereafter. During this period, the sale of the goods may be requested, even though there are other creditors and even if the shipper or consignee is insolvent. But, this right may not be made use of where the goods have been delivered and were turned over to a third person without malice on the part of the third person and for a valuable consideration. In the present case, the cargo of cement was unloaded from the vessel and delivered to the consignee on October 23, 1980, without any oral or written notice or demand having been made on SMCSI for unpaid freight on the cargo. Consequently, after the lapse of thirty (30) days from the date of delivery, the cargo of cement had been released from any maritime lien for unpaid freight.

8.ID.; ID.; ID.; ID.; ID.; CASE OF OVERSEAS FACTORS, INC. INAPPLICABLE. — Petitioner's invocation of Overseas Factors, Inc., et al. vs. South Sea Shipping Co., et al., (4 SCRA 400 [1962]) therefore, is ineffectual and unavailing. In said case, the cargo was still in the possession of the carrier whose officers and crew refused to unload the same unless the balance of the freight was paid. In this case before us, the cargo had already been unconditionally delivered to the consignee SMCI without protest.

D E C I S I O N

REGALADO, J p:

This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R. CV No. 12693, promulgated on August 30, 1990, reversing the decision of the Regional Trial Court of Cebu, Branch XI, in Civil Case No. R-20037 wherein judgment had been rendered for petitioner, as well as the resolution of said respondent court, dated October 15, 1990, denying petitioner's motion for reconsideration. 1

As found by respondent court, petitioner is the registered owner and operator of the motor vessel known as M/V Don Julio Ouano. On October 8, 1980, petitioner leased the said vessel to respondent Rafols under a charter party. The consideration for the letting and hiring of said vessel was P60,000.00 a month, with P30,000.00 as down payment and the balance of P30,000.00 to be paid within twenty (20) days after actual departure of the vessel from the port of call. It was also expressly stipulated that the charterer should operate the vessel for his own benefit and should not sublet or sub-charter the same without the knowledge and written consent of the owner.

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On October 11, 1980, Rafols contracted with respondent Market Developers, Inc. (hereafter, MADE) through its group manager, respondent Julian O. Chua, under an agreement denominated as a "Fixture Note" to transport 13,000 bags of cement from Iligan City to General Santos City, consigned to respondent Supreme Merchant Construction Supply, Inc. (SMCSI, for brevity) for a freightage of P46,150.00. Said amount was agreed to be payable to Rafols by MADE in two installments, that is, P23,075.00 upon loading of the cement at Iligan City and the balance of P23,075.00 upon completion of loading and receipt of the cement cargo by the consignee. The fixture note did not have the written consent of petitioner.

Rafols had on board the M/V Don Julio Ouano his sobre cargo (jefe de viaje) when it departed from Iligan City until the cargo of cement was unloaded in General Santos City, the port of destination.

On October 13, 1980, petitioner wrote a letter to MADE through its aforesaid manager, Chua, "to strongly request, if not demand to hold momentarily any payment or partial payment whatsoever due M/V Don Julio Ouano until Mr. Florentino Rafols makes good his commitment" to petitioner.

On October 20, 1980, MADE, as shipper, paid Rafols the amount of P23,075.00 corresponding to the first installment of the freightage for the aforestated cargo of cement.

The entire cargo was thereafter unloaded at General Santos City Port and delivered to the consignee, herein respondent SMCI, without any attempt on the part of either the captain of M/V Don Julio Ouano or the said sobre cargo of Rafols, or even of petitioner himself who was then in General Santos City Port, to hold and keep in deposit either the whole or part of the cement cargo to answer for freightage. Neither was there any demand made on any of the respondents for a bond to secure payment of the freightage, nor to assert in any manner the maritime lien for unpaid freight over the cargo by giving notice thereof to the consignee SMCI. The cement was sold in due course of trade by SMCI to its customers in October and November, 1980.

On January 6, 1981, petitioner filed a complaint in the Regional Trial Court of Cebu against MADE, as shipper; SMC, as consignee; and Rafols, as charterer, seeking payment of P23,000.00 representing the freight charges for the cement cargo, aside from moral and exemplary damages in the sum of P150,000.00, attorney's fees and expenses of litigation.

On March 10, 1981, MADE filed its answer, while Ang and Chua filed theirs on February 10 and May 31, 1982, respectively. Rafols was declared in default for failure to file his answer despite due service of summons.

On account of the subsequent dropping and impleading of parties defendant, the complaint underwent several amendments until the case was eventually tried on the third amended complaint, which alleged three causes of action against the aforenamed respondents as answering defendants therein.

On May 25, 1985, the trial court rendered a decision in favor of petitioner, with the following disposition:

"WHEREFORE, premises considered, this Court render(s) judgment 1) under plaintiff's first cause of action, ordering defendant MADE (Market Developers, Inc.), Julian O. Chua, Supreme Merchant Construction Supply, Inc., Johnny Ang otherwise known as Chua Pek Giok and defaulted defendant Florentino Rafols, Jr., jointly and severally, to pay to plaintiff Julius C. Ouano the sum of P23,075.00 corresponding to the first 50% freight installment on plaintiff's vessel `M/V Don Julio Ouano' included as part of the purchase price paid by

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defendant SMCSI to defendant MADE, plus legal interest from January 6, 1981 date of filing of the original complaint; 2) under the second cause of action, sentencing MADE (Market Developers), Julian O. Chua and Florentino Rafols, Jr., jointly and solidarily, to pay plaintiff P50,000.00 in concept, of moral and exemplary damages, and P5,000.00 attorney's fees; and 3) under the third cause of action, sentencing defendant Supreme Merchant Construction Supply, Inc. and Johnny Ang alias Chua Pek Giok, jointly and severally, to pay plaintiff P200,000.00 attorney's fees and expenses of litigation, P4,000.00, including P1,000.00 incurred by plaintiff for travel to General Santos City to coordinate with the plaintiff (sic) in serving an alias summons per sheriff's return of service (Exhibit `S'), with costs against all the defendants." 2

On appeal, respondent Court of Appeals reversed the aforesaid decision, holding as follows:

"In the light of the foregoing, appellee Ouano has no cause of action against appellants MADE and SMCSI, but only against defendant Rafols. Their principals not being liable to appellee for the payment of the freightage in question, the agents, appellants Julian O. Chua and Johnny Ang alias Chua Pek Giok who had acted within the scope of their authority, would accordingly not be liable to appellee.

"For the same reason that the defendants-appellants are not liable to pay the appellee the freightage in question, the award of moral and exemplary damages, attorney's fees and expenses of litigation in favor of appellee has no factual and legal basis.

"WHEREFORE, premises, considered, the decision appealed from is reversed and set aside with respect to the defendants-appellants who are hereby absolved from the complaint. The decision is affirmed with respect to defendant Florentino Rafols." 3

Petitioner filed a motion for reconsideration which, as already stated, was denied by the Court of Appeals, 4 hence the present petition with the following assignment of errors:

1.The Honorable Court of Appeals erred in not holding respondents MADE and Chua liable for damages to petitioner for quasi-delict under Art. 2176, New Civil Code, let alone for inducement to violate contract under Art. 1314 thereof.

2.The Court of Appeals erred in not holding respondents MADE and Chua liable for all damages which are the natural and probable consequences of their act or omission, the term `all damages' being broad enough to embrace the P150,000.00 moral and exemplary damages claimed by petitioner, as well as P10,000.00 attorney's fees likewise claimed by him (Art. 2202, N.C.C.).

3.The Court of Appeals erred in not holding respondents MADE and Chua liable jointly and solidarily (Art. 2194, N.C.C.) for the foregoing damages and attorney's fee, as well as actual damages of P23,075.00 representing unpaid freight on petitioner's vessel.

4.The Court of Appeals erred in not holding that in contracts and quasi-delicts the defendants shall be liable for all damages which are the natural and probable consequences of the act or omission complained of, more so if attended with fraud, bad faith, malice or wanton attitude (Arts. 2201 and 2202, N.C.C.).

5.The Court, of Appeals erred in not holding, in accord with the settled doctrine in Overseas Factors, Inc. vs. South Sea Shipping, 4 SCRA 401, that where freight is included in the purchase price, the carrier's lien exists if freight was not paid, hence, the continued liability of respondents MADE and Chua and respondents Supreme Merchant Construction Supply, Inc. and Chua Pek Giok. 5

We find no merit in this petition.

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Preliminarily, the thesis of petitioner that the aforestated fixture note executed by Rafols and MADE was in derogation of the prohibition against the subletting or sub-chartering of the vessel has been duly confuted by respondent court. It pointed out that Rafols did not, by entering into said contract of transportation of the cement cargo, thereby sublease the vessel. The possession, operation, and management of the vessel was not transferred to MADE but remained with Rafols as the lessee or charterer. Rafols, as such lessee, was the one who bound himself to transport, as he did transport, the cargo of cement for a fixed price. 6 On the other hand, even indulging petitioner in his argument that there was a sublease or sub-charter by reason of that one particular cargo of MADE, still no right of recovery exists in his favor against any of the private respondents, except respondent Rafols, as we shall hereunder demonstrate.

It is a basic principle in civil law that, with certain exceptions not obtaining in this case, a contract can only bind the parties who had entered into it or their successors who assumed their personalities or their juridical positions, and that, as a consequence, such contract can neither favor nor prejudice a third person. 7 It is undisputed that the charter contract was entered into only by and between petitioner and respondent Rafols, and the other private respondents were neither parties thereto nor were they aware of the provisions thereof. The aforesaid allegations of petitioner that Rafols violated the prohibition in the contract against the sublease or sub-charter of the vessel without his knowledge and written consent, even if true, does not give rise to a cause of action against the supposed sublessee or sub-charterer. The act of the charterer in sub-chartering the vessel, in spite of a categorical prohibition may be a violation of the contract, but the owner's right of recourse is against the original charterer, either for rescission or fulfillment, with the payment of damages in either case. 8

The obligation of contracts is limited to the parties making them and, ordinarily, only those who are parties to contracts are liable for their breach. Parties to a contract cannot thereby impose any liability on one who, under its terms, is a stranger to the contract, and, in any event, in order to bind a third person contractually, an expression of agent by such person is necessary. 9

We likewise reject the contention of petitioner that MADE and Chua should be held liable for damages for a quasi-delict under Article 176 of the Civil Code for having failed to obtain his consent before entering into an agreement with Rafols, and under Article 1314 of the same Code for inducing Rafols to violate the charter party.

The obligation to obtain the written consent of petitioner before subleasing or sub-chartering the vessel was on Rafols and not on MADE, hence the latter cannot be held liable for the supposed non-compliance therewith.

Moreover, we cannot conceive of how MADE and Chua could be guilty of inducing Rafols to violate the original charter party. Firstly, there is no evidence on record to show that said respondents had knowledge of the prohibition imposed in the original charter party to sublease or sub-charter the vessel. Secondly, at the time the fixture note was entered into between Rafols and MADE, a written authorization signed by the wife of petitioner in his behalf, authorizing Rafols to execute contracts, negotiate for cargoes and receive freight payments, 10 was shown by the former to the latter. Although the said authorization may have been made by the wife, the same, however, can evidently be proof of good faith on the part of MADE and Chua who merely relied thereon. Thirdly, as stated in the fixture note, the agreement between Rafols and MADE was for the former to transport the cement of the latter using either the "M/V Don Julio Ouano or substitute vessel at his discretion." 11Hence, the decision to use the M/V Don Julio Ouano in transporting the cargo of MADE was solely that of Rafols.

Also, herein petitioner is deemed to have ratified the supposed sub-charter contract entered into by MADE and Rafols when he demanded the payment of the second freight installment as

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provided in the agreement and, later, received the same by virtue of the decision of the Court of First Instance of Cebu in Civil Case No. R-19845, an interpleader case filed by MADE. 12

Contrary to petitioner's contestation, the act of MADE in paying the first freight installment to Rafols is not an indication of bad faith or malice. Article 1240 of the Civil Code provides that "(p)ayment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it." Consequently, MADE, under the fixture note, was under obligation to pay the freight to Rafols.

Now, even on petitioner's theory that there was a sublease, it must be stressed that in a sublease arrangement, the basic principles of which are applicable in the present case, there are two distinct leases involved, that is, the principal lease and the sublease. There are two juridical relationships which co-exist and are intimately related to each other, but which are nonetheless distinct one from the other. In such arrangement, the personality of the lessee qua lessee does not disappear; his rights and obligations vis-a-vis the lessor are not passed on to nor acquired by the sublessee. The lessor is. in the main and except only in the instances specified in the Civil Code, a stranger to the relationship between the lessee-sublessor and the sublessee. The lessee-sublessor is not an agent of the lessor nor is the lessor an agent of the lessee-sublessor. The sublessee has no right or authority to pay the sublease rentals to the lessor, said rentals being due and parable to the lessee-sublessor. 13 MADE was, therefore, under no obligation to pay petitioner since the freightage was payable to Rafols.

Although it is provided in Article 1652 of the Civil Code that the sublessee is subsidiarily liable to the lessor for any rent due from the lessee, the sublessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the lessor. However, in the case at bar, petitioner made no demand for payment from MADE. His letter dated October 13, 1980 was only a request to hold momentarily any payment due for the use of M/V Don Julio Ouano until respondent Rafols had made good his obligations to him.

In the absence of any positive action on the part of petitioner, MADE could not withhold the payment of the freight to Rafols. As stated in the fixture note, the first freight installment was due and payable upon arrival of the assigned vessel at the port of loading. The goods were loaded in the vessel on or before October 9, 1980,14 hence on that date the first freight installment was already due and demandable. To further withhold the payment of said installment would constitute a breach of MADE's obligation under the foregoing contract.

In addition, it is also worth noting that, as alleged in paragraph 6 of petitioner's basic complaint filed in the court below, payments were actually made after October 13, 1980 by Rafols to petitioner, to wit: (a) two checks in the total amount of P30,000.00 dated October 13 and 21, 1980, respectively; and (b) a third postdated check for P32,000.00 issued on November 9, 1980. 15 The fact that the said checks bounced for insufficient funds cannot in any way be ascribable to MADE nor can it create or affect any liability which petitioner seeks to impute to respondents MADE, SMCSI and their agents.

Anent the issue on maritime lien on the cargo,. it is the theory of petitioner that the first freight installment having remained unpaid to him as owner of M/V Don Julio Ouano, the maritime lien on the cargo subsists. The said contention is specious and untenable.

Herein petitioner, as owner of the vessel, has no lien on the cargo. A charter party may, among other classifications, be of two kinds: One is where the owner agrees to carry a cargo which the

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charterer agrees to provide, and the second is where there is an entire surrender by the owner of the vessel to the charterer, who hires the vessel as one hires a house, takes her empty, and provides the officers and provisions, and, in short, the entire outfit. In such a contract, the charterer is substituted in place of the owner and becomes the owner for the voyage. 16 This second type is also known as a bareboat charter or otherwise referred to as a demise of the vessel. 17

In a charter party of the second kind, not only the entire capacity of the ship is let but the ship itself, and the possession is passed to the charterer. The entire control and management of it is given up to him. The general owner loses his lien for freight, but the lien itself is not destroyed, the charterer is substituted in his place, in whose favor the lien continues to exist when goods are taken on freight. The general owner, however, has no remedy for the charter of his vessel but his personal action on the covenants of the charter party. It is a contract in which he trusts in the personal credit of the charterer. 18

Therefore, where the charter constitutes a demise of the ship and the charterer is the owner for the voyage, and that is the kind of charter party involved in the instant case, the general owner has no lien on the cargo for the hire of the vessel, in the absence of an express provision therefor 19 as in the case at bar.

Moreover, even on the assumption that petitioner had a lien on the cargo for unpaid freight, the same was deemed waived when the goods were unconditionally released to the consignee at the port of destination. A carrier has such a lien only while it retains possession of the goods, so that delivery of the goods to the consignee or a third person terminates, or constitutes a waiver of, the lien. 20 The lien of a carrier for the payment of freight charges is nothing more than the right to withhold the goods, and is inseparably associated with its possession and dependent upon it. 21

The shipowner's lien for freight is not in the nature of a hypothecation which will remain a charge upon the goods after he has parted with possession, but is simply the right to retain them until the freight is paid, and is therefore lost by an unconditional delivery of the goods to the consignee. 22

Furthermore, under Article 667 of the Code of Commerce, the period during which the lien shall subsist is twenty (20) days. Parenthetically, this has been modified by the Civil Code, Article 2241 whereof provides that credits for transportation of the goods carried, for the price of the contract and incidental expenses shall constitute a preferred claim or lien on the goods carried until their delivery and for thirty (30) days thereafter. During this period, the sale of the goods may be requested, even though there are other creditors and even if the shipper or consignee is insolvent. But, this right may not be made use of where the goods have been delivered and were turned over to a third person without malice on the part of the third person and for a valuable consideration. In the present case, the cargo of cement was unloaded from the vessel and delivered to the consignee on October 23, 1980, without any oral or written notice or demand having been made on SMCSI for unpaid freight on the cargo. Consequently, after the lapse of thirty (30) days from the date of delivery, the cargo of cement had been released from any maritime lien for unpaid freight.

Petitioner's invocation of Overseas Factors, Inc., et al. vs. South Sea Shipping Co., et al.,23 therefore, is ineffectual and unavailing. In said case, the cargo was still in the possession of the carrier whose officers and crew refused to unload the same unless the balance of the freight was paid. In this case before us, the cargo had already been unconditionally delivered to the consignee SMCI without protest.

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WHEREFORE, the petition is DENIED and the assailed judgment of respondent Court of Appeals is hereby AFFIRMED.

SO ORDERED.

Narvasa, C . J ., Padilla and Nocon, JJ ., concur.

[G.R. No. L-11407. October 30, 1917.]

FAUSTO FUBISO and BONIFACIO GELITO, plaintiffs-appellee, vs. FLORENTINO E. RIVERA, defendant-appellant.

Francisco Sevilla for appellant.

Salvador Q. Araullo for appellees.

SYLLABUS

1.SHIPPING; REGISTRATION OF THE PURCHASE OF A VESSES. — The requisite of registration in the registry of the purchase of a vessel is necessary and indispensable in orderer that the purchaser's rights may be maintained against a claim filed by a third person; pursuant to article 573 of the Code of Commerce in connection with section 2 of Act No. 1900, which Act, amending said article, provides that such registration, instead of being made in the commercial registry, shall be entered in the registry of the Insular Collector of Customs, who, since May 18 1909, has been performing the duties of commercial register.

2.ID.; ID. — The legal rule set down in the Code of Commerce, subsist, inasmuch as the amendment solely refers to the official who shall make the entry.

3.ID.; ID. — Ships or vessels, whether moved by steam or by sail, partake to a certain extent, of the nature and conditions of real property, on account of their value and importance in the world commerce; and for this reason the provisions of article 573 of the Code of Commerce are nearly identical with those of article 1473 of the Civil Code.

D E C I S I O N

TORRES, J p:

This appeal by bill of exceptions was filed by counsel for Florentino E. Rivera against the judgment of September 6, 1915, in which the defendant and appellant was ordered to place at the disposal of the plaintiff Fausto Rubiso the pilot boat in litigation. No special finding was made for costs.

On April 10, 1915, counsel for plaintiffs brought suit in the Court of First Instance of this city and alleged in the complaint that his clients were the owners of the pilot boat named Valentina, which had been in bad condition since the year 1914 and, on the date of the complaint, was stranded in the place called Tingloy, of the municipality of Bauan, Batangas; that the defendant Florentino E. Rivera took charge or possession of said vessel without the knowledge or consent of the plaintiffs and refused to deliver it to them, under claim that he was the owner thereof; and that such procedure on the defendant's part cause

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the plaintiffs to suffer damages, not only because they could not proceed to repair the vessel, but also because they were unable to derive profit from the voyages for which said pilot boat was customarily used; and that the net amount of such uncollected profit was P1,750. The complaint terminated with a petition that judgment be rendered by ordering the defendant to deliver said pilot boat to the plaintiffs and indemnify them in the amount aforementioned or in such amount as should be proven at trial, and to pay the costs.

Counsel for the defendant entered a general and specific denial of all the facts set forth in the complaint, with the exception of those admitted in the special defense and consisting in that said pilot boat belonged to the concern named "Gelito & Co.," Bonifacio Gilito being a copartner thereof to the extent of two-thirds, and the Chinaman Sy Qui, to that of one-third, of the value of said vessel; that subsequently Bonifacio Gelito sold his share to his copartner Sy Qui, as attested by the instrument Exhibit A, registered in the office of the Collector of Customs and made a part of his answer; that later said Chinaman, the absolutely owner of the vessel, sold it in turn to the defendant Rivera, according to the public instrument, also attached to his answer as Exhibit B; and that, for this reason, Rivera took possession of the said pilot boat Valentina, as its sole owner. He therefore petitioned that the defendant be absolve from the complaint, with the costs against the plaintiffs.

After the hearing of the case and the introduction of documentary evidence, the judgment of September 6, 1915, was rendered, from which counsel for the defendant appealed and moved for a new trial. This motion was denied and appellant excepted.

The record shows it to have been fully proven that Bonifacio Gelito sold his share in the pilot boat Valentina, consisting of a two-thirds interest therein, to the Chinaman Sy Qui, the co-owner of the other one-third interest in said vessel; wherefore this vendor is no longer entitled to exercise any action whatever in respect to the boat in question. Gelito was one of the partnership owners of the Valentina, as in fact his name appears in the certificate of protection issued by the Bureau of Customs, and the rights he held are evidenced by the articles of partnership; but, the whole ownership in the vessel having been consolidated in behalf of the Chinaman Sy Qui, this latter, in the use of his right as the sole owner of the Valentina, sold this boat to Florentino E. Rivera for P2d, 500, on January 4, 1915, which facts are set forth in a deed ratified on the same date before a notary. This document was registered in the Bureau of Customs on March 17th of the same year.

On the 23d of that year, that is, after the sale of the boat to the defendant Rivera, suit having been brought in the justice of the peace court against the Chinaman Sy Qui to enforce payment of a certain sum of money, the latter's creditor Fausto Rubiso, the herein plaintiff, acquired said vessel at a public auction sale and for the sum of P55.45. The certificate of sale and adjudication of the boat in question was issued by the sheriff on behalf of Fausto Rubiso, in the office of the Collector of Customs, on January 27 of the same year and was also entered in the commercial registry on the 14th of March, following:

So that the pilot boat Valentina was twice said: first privately by its owner Sy Qui to the defendant to the defendant Florentino E. Rivera, on January 4, 1915, and afterwards by the sheriff at public auction in conformity with the order contained in the judgment rendered by the justice of the peace court, on January 23 of the same year, against the Chinaman Sy Qui and in behalf of the plaintiff, Fausto Rubiso.

It is undeniable that the defendant Rivera acquired by purchase the pilot boat Valentina on behalf of the plaintiff Rubiso; but it is no less true that the sale of the vessel by Sy Qui to Florentino E. Rivera, on January 4, 1915, was entered in the customs registry only on March 17, 1915, while its sale is public auction to Fausto Rubiso on the 23d of January of the same year, 1915, was recorded in the office of the Collector of Customs on the 27th of the same month, and in the commercial registry on the 4th of March, following; that is, the sale on behalf of the defendant Rivera was prior to that made at public auction to Rubiso, but the registration of this latter sale was prior by may days to the sale made to the defendant.

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Article 573 of the Code of Commerce provides, in its first paragraph:

"Merchant vessels constitute property which may be acquired an transferred by any of the means recognized by law. The acquisition of a vessel must be included in a written instrument, which shall not produce any effect with regard to third persons if not recorded in the commercial registry."

So that, pursuant to the above-quoted article, inscription in the commercial registry was indispensable , in order that said acquisition might affect, and produce consequences with respect to third persons.

However, since the enactment of Act No. 1900, on May 18, 1909, said article of the Code of Commerce was amended, as appears by section 2 of that Act, herebelow transcribed.

"The documenting, registering, enrolling, and licensing of vessels in accordance with the Customs Administrative Act and customs rules and regulations shall be deemed to be a 900, on May 18, 1909, said article of the Code of Commerce was amended, as appears by section 2 of that Act, herebelow transcribed.

"The documenting, registering, enrolling, and licensing of vessels in accordance with the Customs Administrative Act and customs rules and regulations shall be deemed to be a registry of vessels within the meaning of title two of the Code of Commerce, unless otherwise provided in said Customs Administrative Act or in said customs rules and regulations, and the Insular Collector of Customs shall perform the duties of commercial register concerning the registering of vessels, as defined in title two of the Code of Commerce."

The requisite of registration on the registry, of the purchase of a vessel, is necessary and indispensable in order that the purchaser's rights may be maintained against a claim filed by a third person. Such registration is required both by the Code of Commerce and by Act No. 1900. The amendment solely consisted in charging the Insular Collector of Customs, as at present, with the fulfillment of the duties of the commercial register concerning the registering of vessels; so that the registration of a bill of sale of a vessel shall be made in the office of the Insular Collector of Customs, who, since May 18, 1909, has been performing the duties of the commercial register in place of this latter official.

In view of said legal provisions, it is undeniable that the defendant Florentino E. Rivera's rights cannot prevail over those acquired by Fausto Rubiso in the ownership of the pilot boat Valentina, inasmuch as, though the latter's acquisition of the vessel at public auction, on January 23, 1915, was subsequent to its purchase by the defendant Rivera, nevertheless said sale at public auction was antecedently record in the office of the Collector of Customs, on January 27, and entered in the commercial registry. — An unnecessary proceeding-on March 4th; while the private and voluntary purchase made by Rivera on a prior date was not recorded in the office of the Collector of Customs until many days afterwards, that is, not until March 17, 1915.

The legal rule set down in the Mercantile Code subsists, inasmuch as the amendment solely refers to the official who shall make the entry; but, with respect to the rights of the two purchases, whichever of them first registered his acquisition of the vessel in the one entitled to enjoy the protection of the law, which considers him the absolute owner of the purchased boat, an this latter to be free of all encumbrance and all claims by strangers for, pursuant to article 582 of the said code, after the bill of the judicial sale at auction has been executed and recorded in the commercial registry, all the other liabilities of the vessel in favor of the creditors shall be considered canceled.

The purchaser at public auction, Fausto Rubiso, who was careful to record his acquisition, opportunely and on prior date, has, according to the law, a better right than the defendant Rivera who subsequently recorded his purchase. The latter is a third person, who was directly affected by the registration which the plaintiff made of the acquisition.

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Ships or vessels, whether moved by steam or by sail, partake, to a certain extent, of the nature and conditions of real property, on account of their value and importance in the world commerce; and for this reason the provisions of article 573 of the Code of Commerce are nearly identical with article 1473 of the Civil Code.

With respect to the indemnity for losses and damages, requested by the plaintiff, aside from the fact, ad shown by the evidence, that, subsequent to the date when the judgment appealed from was rendered, the vessel in question emerged unharmed from the place where it was stranded, and was, at the time of the trial, anchored in the port of Maricaban, the record certainly does not furnish any positive evidence of the losses and damages alleged to have been occasioned. On the other hand, it cannot be affirmed that the defendant acted in bad faith specifically because he acquired the vessel on a date prior to that of its acquisition at public auction by the plaintiff Rubiso, who, for the reasons aforestated, is true and sole owner of said pilot boat.

For the foregoing considerations, whereby the errors assigned to the judgment appealed from are deemed to have been refuted, it is our opinion that said judgment should be, as it is hereby, affirmed, with the costs against the appellant. So ordered.

Arrellano, C.J., Johnson, Carson, Street, and Malcolm, JJ., concur.

Araullo, J., did not take part.

[G.R. No. 143866. August 22, 2005.]

POLIAND INDUSTRIAL LIMITED, petitioner, vs. NATIONAL DEVELOPMENT COMPANY, DEVELOPMENT BANK OF THE PHILIPPINES, and THE HONORABLE COURT OF APPEALS (Fourteenth Division), respondents.

[G.R. No. 143877. August 22, 2005.]

NATIONAL DEVELOPMENT COMPANY, petitioner, vs. POLIAND INDUSTRIAL LIMITED, respondent.

The Office of the Government Corporate Counsel for NDC, et al.

Villaraza & Angcangco for Poliand Industrial, Limited.

SYLLABUS

1.POLITICAL LAW; LETTERS OF INSTRUCTION; GENERALLY, LETTERS OF INSTRUCTION DO NOT HAVE THE FORCE AND EFFECT OF A LAW AND CANNOT BE A VALID SOURCE OF OBLIGATION. — As a general rule, letters of instructions are simply directives of the President of the Philippines, issued in the exercise of his administrative power of control, to heads of departments and/or officers under the executive branch of the government for observance by the officials and/or employees thereof. Being administrative in nature, they do not have the force and effect of a law and, thus, cannot be a valid source of obligation.

2.ID.; ID.; ID.; EXCEPTION; PRESIDENT MARCOS ISSUED CERTAIN DECREES, ORDERS AND LETTERS OF INSTRUCTION WHICH THE COURT HAS DECLARED AS HAVING THE FORCE AND EFFECT OF A STATUTE. — However, during the period when then President Marcos exercised

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extraordinary legislative powers, he issued certain decrees, orders and letters of instruction which the Court has declared as having the force and effect of a statute. As pointed out by the Court in Legaspi v. Minister of Finance, paramount considerations compelled the grant of extraordinary legislative power to the President at that time when the nation was beset with threats to public order and the purpose for which the authority was granted was specific to meet the exigencies of that period[.]

3.ID.; ID.; ID.; ID.; CONDITIONS THAT MUST BE ESTABLISHED BEFORE A LETTER OF INSTRUCTION MAY BE CONSIDERED A LAW. — The following conditions must be established before a letter of instruction may be considered a law: To form part of the law of the land, the decree, order or LOI must be issued by the President in the exercise of his extraordinary power of legislation as contemplated in Section 6 of the 1976 amendments to the Constitution, whenever in his judgment, there exists a grave emergency or threat or imminence thereof, or whenever the interim Batasan Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason that in his judgment requires immediate action. Only when issued under any of the two circumstances will a decree, order, or letter be qualified as having the force and effect of law. The decree or instruction should have been issued either when there existed a grave emergency or threat or imminence or when the Legislature failed or was unable to act adequately on the matter. The qualification that there exists a grave emergency or threat or imminence thereof must be interpreted to refer to the prevailing peace and order conditions because the particular purpose the President was authorized to assume legislative powers was to address the deteriorating peace and order situation during the martial law period.

4.ID.; ID.; ID.; ID.; LETTER OF INSTRUCTION NO. 1155 WAS IN THE NATURE OF A MERE ADMINISTRATIVE ISSUANCE TO UNDERTAKE A POLICY MEASURE. — Although LOI No. 1155 was undoubtedly issued at the time when the President exercised legislative powers granted under Amendment No. 6 of the 1973 Constitution, the language and purpose of LOI No. 1155 precludes this Court from declaring that said LOI had the force and effect of law in the absence of any of the conditions set out in Parong. The subject matter of LOI No. 1155 is not connected, directly or remotely, to a grave emergency or threat to the peace and order situation of the nation in particular or to the public interest in general. Nothing in the language of LOI No. 1155 suggests that it was issued to address the security of the nation. Obviously, LOI No. 1155 was in the nature of a mere administrative issuance directed to NDC, DBP and MARINA to undertake a policy measure, that is, to rehabilitate a private corporation.

5.MERCANTILE LAW; CORPORATION LAW; MERGER AND CONSOLIDATION OF CORPORATION; MERGER SHALL ONLY BE EFFECTIVE UPON THE ISSUANCE OF A CERTIFICATE OF MERGER BY THE SECURITIES AND EXCHANGE COMMISSION (SEC). — Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation. The merger, however, does not become effective upon the mere agreement of the constituent corporations. As specifically provided under Section 79 of said Code, the merger shall only be effective upon the issuance of a certificate of merger by the Securities and Exchange Commission (SEC), subject to its prior determination that the merger is not inconsistent with the Code or existing laws. Where a party to the merger is a special corporation governed by its own charter, the Code particularly mandates that a favorable recommendation of the appropriate government agency should first be obtained. The issuance of the certificate of merger is crucial because not only does it bear out SEC's approval but also marks the moment whereupon the consequences of a merger take place. By operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights, and properties as well as liabilities shall be taken and deemed transferred to and vested in the surviving corporation.

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6.REMEDIAL LAW; CIVIL PROCEDURE; APPEAL BY CERTIORARI; GENERALLY, AN APPELLATE COURT MAY ONLY PASS UPON ERRORS ASSIGNED; EXCEPTIONS. — Generally, an appellate court may only pass upon errors assigned. However, this rule is not without exceptions. In the following instances, the Court ruled that an appellate court is accorded a broad discretionary power to waive the lack of assignment of errors and consider errors not assigned: (a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter; (b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice; (d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (e) Matters not assigned as errors on appeal but closely related to an error assigned; (f) Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is dependent.

7.MERCANTILE LAW; CODE OF COMMERCE; ARTICLE 378 THEREOF GOVERNS THE SALE OF VESSELS IN A FOREIGN PORT; NOT APPLICABLE IN CASE AT BAR. — NDC cites Articles 578 and 580 of the Code of Commerce to bolster its argument that the foreclosure of the vessels extinguished all claims against the vessels including POLIAND's claim. Article 578 of the Code of Commerce is not relevant to the facts of the instant case because it governs the sale of vessels in a foreign port. Said provision outlines the formal and registration requirements in order that a sale of a vessel on voyage or in a foreign port becomes effective as against third persons. On the other hand, the resolution of the instant case depends on the determination as to which creditor is entitled to the proceeds of the foreclosure sale of the vessels. Clearly, Article 578 of the Code of Commerce is inapplicable.

8.ID.; PRESIDENTIAL DECREE NO. 1521 (SHIP MORTGAGE DECREE OF 1978); PREFERRED MORTGAGE LIEN; SECTION 17 THEREOF REPEALED ARTICLE 580 OF THE CODE OF COMMERCE. — Article 580, while providing for the order of payment of creditors in the event of sale of a vessel, had been repealed by the pertinent provisions of Presidential Decree (P.D.) No. 1521, otherwise known as the Ship Mortgage Decree of 1978. In particular, Article 580 provides that in case of the judicial sale of a vessel for the payment of creditors, the debts shall be satisfied in the order specified therein. On the other hand, Section 17 of P.D. No. 1521 also provides that in the judicial or extrajudicial sale of a vessel for the enforcement of a preferred mortgage lien constituted in accordance with Section 2 of P.D. No. 1521, such preferred mortgage lien shall have priority over all pre-existing claims against the vessel, save for those claims enumerated under Section 17, which have preference over the preferred mortgage lien in the order stated therein. Since P.D. No. 1521 is a subsequent legislation and since said law in Section 17 thereof confers on the preferred mortgage lien on the vessel superiority over all other claims, thereby engendering an irreconcilable conflict with the order of preference provided under Article 580 of the Code of Commerce, it follows that the Code of Commerce provision is deemed repealed by the provision of P.D. No. 1521, as the posterior law.

9.ID.; ID.; ID.; IF IT IS CONSTITUTED FOR THE PURPOSE STATED UNDER SECTION 2 THEREOF, THE MORTGAGE OBTAINS A PREFERRED STATUS. — If the mortgage on the vessel is constituted for the purpose stated under Section 2, the mortgage obtains a preferred status provided the formal requisites enumerated under Section 4 are complied with. Upon enforcement of the preferred mortgage and eventual foreclosure of the vessel, the proceeds of the sale shall be first applied to the claim of the mortgage creditor unless there are superior or preferential liens, as enumerated under Section 17[.]

10.ID.; ID.; ID.; ITS PROVISION ON THE ORDER OF PREFERENCE IN THE SATISFACTION OF THE CLAIMS AGAINST THE VESSEL IS MORE APPLICABLE COMPARED TO THE CIVIL CODE PROVISIONS

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ON THE CONCURRENCE AND PREFERENCE OF CREDITS. — The provision of P.D. No. 1521 on the order of preference in the satisfaction of the claims against the vessel is the more applicable statute to the instant case compared to the Civil Code provisions on the concurrence and preference of credit. General legislation must give way to special legislation on the same subject, and generally be so interpreted as to embrace only cases in which the special provisions are not applicable.

11.ID.; ID.; ID.; MARITIME LIEN ARISING PRIOR IN TIME TO THE RECORDING OF THE PREFERRED MORTGAGE IS CONSIDERED TO BE SUPERIOR TO THE LATTER. — Before POLIAND's claim may be classified as superior to the mortgage constituted on the vessel, it must be shown to be one of the enumerated claims which Section 17, P.D. No. 1521 declares as having preferential status in the event of the sale of the vessel. One of such claims enumerated under Section 17, P.D. No. 1521 which is considered to be superior to the preferred mortgage lien is a maritime lien arising prior in time to the recording of the preferred mortgage. Such maritime lien is described under Section 21, P.D. No. 1521[.] . . . Under the aforequoted provision, the expense must be incurred upon the order of the owner of the vessel or its authorized person and prior to the recording of the ship mortgage. Under the law, it must be established that the credit was extended to the vessel itself.

12.ID.; ID.; ID.; EXPENSE ON THE VESSEL INDISPENSABLE TO THE MAINTENANCE AND NAVIGATION OF THE VESSEL MAY PROPERLY BE TREATED AS A MARITIME LIEN FOR NECESSARIES. — As stated in Section 21, P.D. No. 1521, a maritime lien may consist in "other necessaries spent for the vessel." The ship modification cost may properly be classified under this broad category because it was a necessary expenses for the vessel's navigation. As long as an expense on the vessel is indispensable to the maintenance and navigation of the vessel, it may properly be treated as a maritime lien for necessaries under Section 21, P.D. No. 1521. With respect to the claim for salary and wages of the crew, there is no doubt that it is also one of the enumerated claims under Section 17, P.D. No. 1521, second only to judicial costs and taxes due the government in preference and, thus, having a status superior to DBP's mortgage lien.

13.REMEDIAL LAW; EVIDENCE; CREDIBILITY; GENERALLY, FINDINGS OF FACT OF LOWER COURTS ARE DEEMED CONCLUSIVE AND BINDING UPON THE SUPREME COURT. — All told, the determination of the existence and the amount of POLIAND's claim for maritime lien is a finding of fact which is within the province of the courts below. Findings of fact of lower courts are deemed conclusive and binding upon the Supreme Court except when the findings are grounded on speculation, surmises or conjectures; when the inference made is manifestly mistaken, absurd or impossible; when there is grave abuse of discretion in the appreciation of facts; when the factual findings of the trial and appellate courts are conflicting; when the Court of Appeals, in making its findings, has gone beyond the issues of the case and such findings are contrary to the admissions of both appellant and appellee; when the judgment of the appellate court is premised on a misapprehension of facts or when it has failed to notice certain relevant facts which, if properly considered, will justify a different conclusion; when the findings of fact are conclusions without citation of specific evidence upon which they are based; and when findings of fact of the Court of Appeals are premised on the absence of evidence but are contradicted by the evidence on record. The Court finds no sufficient justification to reverse the findings of the trial court and the appellate court in respect to the existence and amount of maritime lien.

14.MERCANTILE LAW; PRESIDENTIAL DECREE NO. 1521; PREFERRED MORTGAGE LIEN; THIRD PERSON WHO SATISFIES THE OBLIGATION TO AN ORIGINAL MARITIME LIEN MAY CLAIM FROM THE DEBTOR. — The first argument is absurd. Although POLIAND or its predecessors-in-interest are not sailors entitled to wages, they can still make a claim for the advances spent for the salary and wages of the crew under the principle of legal subrogation. As explained in Philippine National Bank v. Court of Appeals, a third person who satisfies the obligation to an original

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maritime lienor may claim from the debtor because the third person is subrogated to the rights of the maritime lienor over the vessel.

15.CIVIL LAW; OBLIGATIONS AND CONTRACTS; STATUTE OF FRAUDS; INAPPLICABLE WHEN THERE IS NO CONTRACT BETWEEN THE PARTIES. — DBP's reliance on the Statute of Frauds is misplaced. Article 1403 (2) of the Civil Code, which enumerates the contracts covered by the Statute of Frauds, is inapplicable. To begin with, there is no privity of contract between POLIAND or its predecessors-in-interest, on one hand, and DBP, on the other. POLIAND hinges its claim on the maritime lien based on LOI No. 1195 and P.D. No. 1521, and not on any contract or agreement.

16.ID.; PROPERTY; MODES OF ACQUIRING OWNERSHIP; PRESCRIPTION OF ACTIONS; PRESCRIPTIVE PERIOD WAS TOLLED WHEN A WRITTEN DEMAND FOR THE SATISFACTION OF OBLIGATION WAS MADE. — Neither can DBP invoke prescription or laches against POLIAND. Under Article 1144 of the Civil Code, an action upon an obligation created by law must be brought within ten years from the time the right of action accrues. The right of action arose after January 15, 1982, when NDC partially paid off GALLEON's obligations to POLIAND's predecessor-in-interest, Asian Hardwood. At that time, the prescriptive period for the enforcement by action of the balance of GALLEON's outstanding obligations had commenced. Prescription could not have set in because the prescriptive period was tolled when POLIAND made a written demand for the satisfaction of the obligation on September 24, 1991, or before the lapse of the ten-year prescriptive period. Laches also do not lie because there was no unreasonable delay on the part of POLIAND in asserting its rights. Indeed, it instituted the instant suit seasonably.

17.MERCANTILE LAW; PRESIDENTIAL DECREE NO. 1521; PREFERRED MORTGAGE LIEN; MARITIME LIEN IS INSEPARABLE FROM THE VESSEL AND UNTIL DISCHARGED, IT FOLLOWS THE VESSEL. — All things considered, however, the Court finds that only NDC is liable for the payment of the maritime lien. A maritime lien is akin to a mortgage lien in that in spite of the transfer of ownership, the lien is not extinguished. The maritime lien is inseparable from the vessel and until discharged, it follows the vessel. Hence, the enforcement of a maritime lien is in the nature and character of a proceeding quasi in rem. The expression "action in rem" is, in its narrow application, used only with reference to certain proceedings in courts of admiralty wherein the property alone is treated as responsible for the claim or obligation upon which the proceedings are based. Considering that DBP subsequently transferred ownership of the vessels to NDC, the Court holds the latter liable on the maritime lien. Notwithstanding the subsequent transfer of the vessels to NDC, the maritime lien subsists.

18.CIVIL LAW; DAMAGES; ATTORNEY'S FEES; WHEN IT CAN BE AWARDED. — This Court finds no reversible error with the award as upheld by the appellate court. Under Article 2208 of the Civil Code, attorney's fees may be awarded inter alia when the defendant's act or omission has compelled the plaintiff to incur expenses to protect his interest or in any other case where the court deems it just and equitable that attorney's fees and expenses of litigation be recovered.

19.REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENT; WHERE THE INEVITABLE CONCLUSION FROM THE BODY OF THE DECISION IS SO CLEAR AS TO SHOUT THAT THERE WAS A MISTAKE IN THE DISPOSITIVE PORTION, THE BODY OF THE DECISION WILL PREVAIL. — The general rule is that where there is conflict between the dispositive portion or the fallo and the body of the decision, the fallo controls. This rule rests on the theory that the fallo is the final order while the opinion in the body is merely a statement ordering nothing. However, where the inevitable conclusion from the body of the decision is so clear as to show that there was a mistake in the dispositive portion, the body of the decision will prevail. In the instant case, it is clear from the trial court records and the Court of Appeals' Rollo that the bigger amount awarded in the dispositive portion of the Court of Appeals' Decision was a typographical mistake. Considering that the appellate court's Decision merely affirmed the trial court's finding with respect to the amount of maritime lien, the

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bigger amount stated in the dispositive portion of the Court of Appeals' Decision must have been awarded through inadvertence.

D E C I S I O N

TINGA, J p:

Before this Court are two Rule 45 consolidated petitions for review seeking the review of the Decision 1 of the Court of Appeals (Fourth Division) in CA-G.R. CV No. 53257, which modified the Decision of the Regional Trial Court, Branch 61, Makati City in Civil Case No. 91-2798. Upon motion of the Development Bank of the Philippines (DBP), the two petitions were consolidated since both assail the same Decision of the Court of Appeals.

In G.R. No. 143866, petitioner Poliand Industrial Limited (POLIAND) seeks judgment declaring the National Development Company (NDC) and the DBP solidarily liable in the amount of US$2,315,747.32, representing the maritime lien in favor of POLIAND and the net amount of loans incurred by Galleon Shipping Corporation (GALLEON). It also prays that NDC and DBP be ordered to pay the attorney's fees and costs of the proceedings as solidary debtors. In G.R. No. 143877, petitioner NDC seeks the reversal of the Court of Appeals' Decision ordering it to pay POLIAND the amount of One Million Nine Hundred Twenty Thousand Two Hundred Ninety-Eight and 56/100 United States Dollars (US$1,920,298.56), corresponding to the maritime lien in favor of POLIAND, plus interest.

ANTECEDENTS

The following factual antecedents are matters of record.

Between October 1979 and March 1981, Asian Hardwood Limited (Asian Hardwood), a Hong Kong corporation, extended credit accommodations in favor of GALLEON totaling US$3,317,747.32. 2 At that time, GALLEON, a domestic corporation organized in 1977 and headed by its president, Roberto Cuenca, was engaged in the maritime transport of goods. The advances were utilized to augment GALLEON's working capital depleted as a result of the purchase of five new vessels and two second-hand vessels in 1979 and competitiveness of the shipping industry. GALLEON had incurred an obligation in the total amount of US$3,391,084.91 in favor of Asian Hardwood.

To finance the acquisition of the vessels, GALLEON obtained loans from Japanese lenders, namely, Taiyo Kobe Bank, Ltd., Mitsui Bank Ltd. and Marubeni Benelux. On October 10, 1979, GALLEON, through Cuenca, and DBP executed a Deed of Undertaking 3 whereby DBP guaranteed the prompt and punctual payment of GALLEON's borrowings from the Japanese lenders. To secure DBP's guarantee under the Deed of Undertaking, GALLEON promised, among others, to secure a first mortgage on the five new vessels and on the second-hand vessels. Thus, GALLEON executed on January 25, 1982 a mortgage contract over five of its vessels namely, M/V "Galleon Honor," M/V "Galleon Integrity," M/V "Galleon Dignity," M/V "Galleon Pride," and M/V "Galleon Trust" in favor of DBP. 4

Meanwhile, on January 21, 1981, President Ferdinand Marcos issued Letter of Instruction (LOI) No. 1155, directing NDC to acquire the entire shareholdings of GALLEON for the amount originally contributed by its shareholders payable in five (5) years without interest cost to the

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government. In the same LOI, DBP was to advance to GALLEON within three years from its effectivity the principal amount and the interest thereon of GALLEON's maturing obligations. ESTAIH

On August 10, 1981, GALLEON, represented by its president, Cuenca, and NDC, represented by Minister of Trade Roberto Ongpin, forged a Memorandum of Agreement, 5 whereby NDC and GALLEON agreed to execute a share purchase agreement within sixty days for the transfer of GALLEON's shareholdings. Thereafter, NDC assumed the management and operations of GALLEON although Cuenca remained president until May 9, 1982. 6 Using its own funds, NDC paid Asian Hardwood on January 15, 1982 the amount of US$1,000,000.00 as partial settlement of GALLEON's obligations. 7

On February 10, 1982, LOI No. 1195 was issued directing the foreclosure of the mortgage on the five vessels. For failure of GALLEON to pay its debt despite repeated demands from DBP, the vessels were extrajudicially foreclosed on various dates and acquired by DBP for the total amount of P539,000,000.00. DBP subsequently sold the vessels to NDC for the same amount. 8

On April 22, 1982, the Board of Directors of GALLEON amended the Articles of Incorporation changing the corporate name from Galleon Shipping Corporation to National Galleon Shipping Corporation and increasing the number of directors from seven to nine. 9

Asian Hardwood assigned its rights over the outstanding obligation of GALLEON of US$2,315,747.32 to World Universal Trading and Investment Company, S.A. (World Universal), embodied in a Deed of Assignment executed on April 29, 1989. 10 World Universal, in turn, assigned the credit to petitioner POLIAND sometime in July 1989. 11

On March 24, 1988, then President Aquino issued Administrative Order No. 64, directing NDC and Philippine Export and Foreign Loan Guarantee Corporation (now Trade and Investment Development Corporation of the Philippines) to transfer some of their assets to the National Government, through the Asset Privatization Trust (APT) for disposition. Among those transferred to the APT were the five GALLEON vessels sold at the foreclosure proceedings.

On September 24, 1991, POLIAND made written demands on GALLEON, NDC, and DBP for the satisfaction of the outstanding balance in the amount of US$2,315,747.32. 12 For failure to heed the demand, POLIAND instituted a collection suit against NDC, DBP and GALLEON filed on October 10, 1991 with the Regional Trial Court, Branch 61, Makati City. POLIAND claimed that under LOI No. 1155 and the Memorandum of Agreement between GALLEON and NDC, defendants GALLEON, NDC, and DBP were solidarily liable to POLIAND as assignee of the rights of the credit advances/loan accommodations to GALLEON. POLIAND also claimed that it had a preferred maritime lien over the proceeds of the extrajudicial foreclosure sale of GALLEON's vessels mortgaged by NDC to DBP. The complaint prayed for judgment ordering NDC, DBP, and GALLEON to pay POLIAND jointly and severally the balance of the credit advances/loan accommodations in the amount of US$2,315,747.32 and attorney's fees of P100,000.00 plus 20% of the amount recovered. By way of an alternative cause of action, POLIAND sought reimbursement from NDC and DBP for the preferred maritime lien of US$1,193,298.56. 13

In its Answer with Compulsory Counterclaim and Cross-claim, DBP denied being a party to any of the alleged loan transactions. Accordingly, DBP argued that POLIAND's complaint stated no cause of action against DBP or was barred by the Statute of Frauds because DBP did not sign any memorandum to act as guarantor for the alleged credit advances/loan accommodations in favor of POLIAND. DBP also denied any liability under LOI No. 1155, which it described as immoral and unconstitutional, since it was rescinded by LOI No. 1195. By way of its Affirmative Allegations and Defenses, DBP countered that it was unaware of the maritime lien on the five vessels mortgaged in its favor and that as far as GALLEON's foreign borrowings are concerned, DBP

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agreed to act as guarantor thereof only under the conditions laid down under the Deed of Undertaking. DBP prayed for the award of actual, moral and exemplary damages and attorney's fees against POLIAND as compulsory counterclaim. In the event that it be adjudged liable for the payment of the loan accommodations and the maritime liens, DBP prayed that its co-defendant GALLEON be ordered to indemnify DBP for the full amount. 14

For its part, NDC denied any participation in the execution of the loan accommodations/credit advances and acquisition of ownership of GALLEON, asserting that it acted only as manager of GALLEON. NDC specifically denied having agreed to the assumption of GALLEON's liabilities because no purchase and sale agreement was executed and the delivery of the required shares of stock of GALLEON did not take place. 15

Upon motion by POLIAND, the trial court dropped GALLEON as a defendant, despite vigorous oppositions from NDC and DBP. At the pre-trial conference on April 29, 1993, the trial court issued an Order limiting the issues to the following: (1) whether or not GALLEON has an outstanding obligation in the amount of US$2,315,747.32; (2) whether or not NDC and DBP may be held solidarily liable therefor; and (3) whether or not there exists a preferred maritime lien of P1,000,000.00 in favor of POLIAND. 16

After trial on the merits, the court a quo rendered a decision on August 9, 1996 in favor of POLIAND. Finding that GALLEON's loan advances/credit accommodations were duly established by the evidence on record, the trial court concluded that under LOI No. 1155, DBP and NDC are liable for those obligations. The trial court also found NDC liable for GALLEON's obligations based on the Memorandum of Agreement dated August 1981 executed between GALLEON and NDC, where it was provided that NDC shall prioritize repayments of GALLEON's valid and subsisting liabilities subject of a meritorious lawsuit or which have been arranged and guaranteed by Cuenca. The trial court was of the opinion that despite the subsequent issuance of LOI No. 1195, NDC and DBP's obligation under LOI No. 1155 subsisted because "vested rights of the parties have arisen therefrom." Accordingly, the trial court interpreted LOI No. 1195's directive to "limit and protect" to mean that "DBP and NDC should not assume or incur additional exposure with respect to GALLEON." 17

The trial court dismissed NDC's argument that the Memorandum of Agreement was merely a preliminary agreement, noting that under paragraph nine thereof, the only condition for the payment of GALLEON's subsisting loans by NDC was the determination by the latter that those obligations were incurred in the ordinary course of GALLEON's business. The trial court did not regard the non-execution of the stock purchase agreement as fatal to POLIAND's cause since its non-happening was solely attributable to NDC. The trial court also ruled that POLIAND had preference to the maritime lien over the proceeds of the extrajudicial foreclosure sale of GALLEON's vessels since the loan advances/credit accommodations utilized for the payment of expenses on the vessels were obtained prior to the constitution of the mortgage in favor of DBP. IDCScA

In sum, NDC and DBP were ordered to pay POLIAND as follows:

WHEREFORE, premises above considered, judgment is hereby rendered for plaintiff as against defendants DBP and NDC, who are hereby ORDERED as follows:

1.To jointly and severally PAY plaintiff POLIAND the amount of TWO MILLION THREE HUNDRED FIFTEEN THOUSAND SEVEN HUNDRED FORTY SEVEN AND 21/100 [sic] United States Dollars (US$2,315,747.32) computed at the official exchange rate at the time of payment, plus interest at the rate of 12% per annum from 25 September 1991 until fully paid;

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2.To PAY the amount of ONE MILLION (P1,000,000.) Pesos, Philippine Currency, for and as attorney's fees; and

3.To PAY the costs of the proceedings.

SO ORDERED. 18

Both NDC and DBP appealed the trial court's decision.

The Court of Appeals rendered a modified judgment, absolving DBP of any liability in view of POLIAND's failure to clearly prove its action against DBP. The appellate court also discharged NDC of any liability arising from the credit advances/loan obligations obtained by GALLEON on the ground that NDC did not acquire ownership of GALLEON but merely assumed control over its management and operations. However, NDC was held liable to POLIAND for the payment of the preferred maritime lien based on LOI No. 1195 which directed NDC to "discharge such maritime liens as may be necessary to allow the foreclosed vessels to engage on the international shipping business," as well as attorney's fees and costs of suit. The dispositive portion of the Decision reads:

WHEREFORE, the assailed decision is MODIFIED, in accordance with the foregoing findings, as follows:

The case against defendant-appellant DBP is hereby DISMISSED.

Defendant-appellant NDC is hereby ordered to pay plaintiff-appellee POLIAND the amount of US$1,920,298.56 plus legal interest effective September 12, 1984.

The award of attorney's fees and cost of suit is addressed only against NDC.

Costs against defendant-appellant NDC.

SO ORDERED. 19

Not satisfied with the modified judgment, both POLIAND and NDC elevated it to this Court via two separate petitions for review on certiorari. In G.R. No. 143866 filed on August 21, 2000, petitioner POLIAND raises the following arguments:

RESPONDENT COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERRORS IN ITS QUESTIONED DECISION DATED 29 JUNE 2000 AND DECIDED QUESTIONS CONTRARY TO LAW AND THE APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT MODIFIED THE DECISION DATED 09 AUGUST 1996 RENDERED BY THE REGIONAL TRIAL COURT (BRANCH 61) CONSIDERING THAT:

A.

CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS, RESPONDENT NDC NOT ONLY TOOK OVER TOTALLY THE MANAGEMENT AND CONTROL OF GALLEON BUT ALSO ASSUMED OWNERSHIP OF GALLEON PURSUANT TO LOI NO. 1155 AND THE MEMORANDUM OF AGREEMENT DATED 10 AUGUST 1981; THUS, RESPONDENT NDC'S ACQUISITION OF FULL OWNERSHIP AND CONTROL OF GALLEON CARRIED WITH IT THE ASSUMPTION OF THE LATTER'S LIABILITIES TO THIRD PARTIES SUCH AS ASIAN HARDWOOD, PETITIONER POLIAND'S PREDECESSOR-IN-INTEREST. cSCTEH

B.

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RESPONDENT COURT OF APPEALS, IN VIOLATION OF THE CONSTITUTION AND THE RULES OF COURT, DISMISSED THE CASE AGAINST RESPONDENT DBP WITHOUT STATING CLEARLY AND DISTINCTLY THE REASONS FOR SUCH A DISMISSAL.

C.

CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS, PETITIONER POLIAND WAS ABLE TO ESTABLISH THAT RESPONDENT DBP IS SOLIDARILY LIABLE, TOGETHER WITH RESPONDENT NDC, WITH RESPECT TO THE NET TOTAL AMOUNT OWING TO PETITIONER POLIAND.

D.

RESPONDENT COURT OF APPEALS GRAVELY ERRED ALSO IN NOT FINDING THAT RESPONDENT DBP IS JOINTLY AND SOLIDARILY LIABLE WITH RESPONDENT NDC FOR THE PAYMENT OF MARITIME LIENS PLUS INTEREST PURSUANT TO SECTION 17 OF PRESIDENTIAL DECREE 1521. 20

On August 25, 2000, NDC filed its petition, docketed as G.R. No. 143877, imputing the following errors to the Court of Appeals:

I.

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER NDC IS LIABLE TO PAY GALLEON'S OUTSTANDING OBLIGATION TO RESPONDENT POLIAND IN THE AMOUNT OF US$ 1,920,298.56, TO SATISFY THE PREFERRED MARITIME LIENS OVER THE PROCEEDS OF THE FORECLOSURE SALE OF THE FIVE GALLEON VESSELS.

(A)PRESIDENTIAL DECREE NO. 1521 OTHERWISE KNOWN AS THE 'SHIP MORTGAGE DECREE OF 1978 IS NOT APPLICABLE IN THE CASE AT BAR.

(B)PETITIONER NDC DOES NOT HOLD THE PROCEEDS OF THE FORECLOSURE SALE OF THE FIVE (5) GALLEON VESSELS.

(C)THE FORECLOSURE SALE OF THE FIVE (5) GALLEON VESSELS EXTINGUISHES ALL CLAIMS AGAINST THE VESSELS.

II.

THE COURT OF APPEALS ERRED IN AWARDING ATTORNEY'S FEES TO RESPONDENT POLIAND. 21

The two petitions were consolidated considering that both petitions assail the same Court of Appeals' Decision, although on different fronts. In G.R. No. 143866, POLIAND questions the appellate court's finding that neither NDC nor DBP can be held liable for the loan accommodations to GALLEON. In G.R. No. 143877, NDC asserts that it is not liable to POLIAND for the preferred maritime lien.

ISSUES

The bone of contention revolves around two main issues, namely: (1) Whether NDC or DBP or both are liable to POLIAND on the loan accommodations and credit advances incurred by GALLEON, and (2) Whether POLIAND has a maritime lien enforceable against NDC or DBP or both.

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RULING of the COURTI.Liability on loan accommodations

and credit advances incurred by GALLEON

The Court of Appeals reversed the trial court's conclusion that NDC and DBP are both liable to POLIAND for GALLEON's debts on the basis of LOI No. 1155 and theMemorandum of Agreement. It ratiocinated thus:

With respect to appellant NDC, resolution of the matters raised in its assignment of errors hinges on whether or not it acquired the shareholdings of GALLEON as directed by LOI 1155; and if in the negative, whether or not it is liable to pay GALLEON's outstanding obligation. HAICET

The Court answers the issue in the negative. The MOA executed by GALLEON and NDC following the issuance of LOI 1155 called for the execution of a "formal share purchase agreement and the transfer of all the shareholdings of seller to Buyer." Since no such execution and consequent transfer of shareholdings took place, NDC did not acquire ownership of GALLEON. It merely assumed "actual control over the management and operations" of GALLEON in the exercise of which it, on January 15, 1982, after being satisfied of the existence of GALLEON's obligation to ASIAN HARDWOOD, partially paid the latter One Million ($1,000,000.00) US dollars. 22

xxx xxx xxx

With respect to defendant-appellant DBP, POLIAND failed to clearly prove its cause of action against it. This leaves it unnecessary to dwell on DBP's other assigned errors, including that bearing on its claim for damages and attorney's fees which does not persuade. 23

POLIAND's cause of action against NDC is premised on the theory that when NDC acquired all the shareholdings of GALLEON, the former also assumed the latter's liabilities, including the loan advances/credit accommodations obtained by GALLEON from POLIAND's predecessors-in-interest. In G.R. No. 143866, POLIAND argues that NDC acquired ownership of GALLEON pursuant to paragraphs 1 and 2 of LOI No. 1155, which was implemented through the execution of the Memorandum of Agreement. It believes that no conditions were required prior to the assumption by NDC of GALLEON's ownership and subsisting loans. Even assuming that conditions were set, POLIAND opines that the conditions were deemed fulfilled pursuant to Article 1186 of the Civil Code because of NDC's apparent intent to prevent the execution of the share purchase agreement. 24

On the other hand, NDC asserts that it could not have acquired GALLEON's equity and, consequently, its liabilities because LOI No. 1155 had been rescinded by LOI No. 1195, and therefore, became inoperative and non-existent. Moreover, NDC, relying on the pronouncements in Philippine Association of Service Exporters, Inc. et al. v. Ruben D. Torres 25 and Parong, et al. v. Minister Enrile, 26 is of the opinion that LOI No. 1155 does not have the force and effect of law and cannot be a valid source of obligation. 27 NDC denies POLIAND's contention that it deliberately prevented the execution of the share purchase agreement considering that Cuenca remained GALLEON's president seven months after the signing of the Memorandum of Agreement. 28 NDC contends that the Memorandum of Agreement was a mere preliminary agreement between Cuenca and Ongpin for the intended purchase of GALLEON's equity, prescribing the manner, terms and conditions of said purchase.29

NDC, not liable under LOI No. 1155

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As a general rule, letters of instructions are simply directives of the President of the Philippines, issued in the exercise of his administrative power of control, to heads of departments and/or officers under the executive branch of the government for observance by the officials and/or employees thereof. 30 Being administrative in nature, they do not have the force and effect of a law and, thus, cannot be a valid source of obligation. However, during the period when then President Marcos exercised extraordinary legislative powers, he issued certain decrees, orders and letters of instruction which the Court has declared as having the force and effect of a statute. As pointed out by the Court in Legaspi v. Minister of Finance, 31 paramount considerations compelled the grant of extraordinary legislative power to the President at that time when the nation was beset with threats to public order and the purpose for which the authority was granted was specific to meet the exigencies of that period, thus:

True, without loss of time, President Marcos made it clear that there was no military take-over of the government, and that much less was there being established a revolutionary government, even as he declared that said martial law was of a double-barrelled type, unfamiliar to traditional constitutionalists and political scientists — for two basic and transcendental objectives were intended by it: (1) the quelling of nation-wide subversive activities characteristic not only of a rebellion but of a state of war fanned by a foreign power of a different ideology from ours, and not excluding the stopping effectively of a brewing, if not a strong separatist movement in Mindanao, and (2) the establishment of a New Society by the institution of disciplinary measures designed to eradicate the deep-rooted causes of the rebellion and elevate the standards of living, education and culture of our people, and most of all the social amelioration of the poor and underprivileged in the farms and in the barrios, to the end that hopefully insurgency may not rear its head in this country again. 32

Thus, before a letter of instruction is declared as having the force and effect of a statute, a determination of whether or not it was issued in response to the objectives stated in Legaspi is necessary. Parong, et al. v. Minister Enrile 33 differentiated between LOIs in the nature of mere administrative issuances and those forming part of the law of the land. The following conditions must be established before a letter of instruction may be considered a law:

To form part of the law of the land, the decree, order or LOI must be issued by the President in the exercise of his extraordinary power of legislation as contemplated in Section 6 of the 1976 amendments to the Constitution, whenever in his judgment, there exists a grave emergency or threat or imminence thereof, or whenever the interim Batasan Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason that in his judgment requires immediate action. 34

Only when issued under any of the two circumstances will a decree, order, or letter be qualified as having the force and effect of law. The decree or instruction should have been issued either when there existed a grave emergency or threat or imminence or when the Legislature failed or was unable to act adequately on the matter. The qualification that there exists a grave emergency or threat or imminence thereof must be interpreted to refer to the prevailing peace and order conditions because the particular purpose the President was authorized to assume legislative powers was to address the deteriorating peace and order situation during the martial law period.

There is no doubt that LOI No. 1155 was issued on July 21, 1981 when then President Marcos was vested with extraordinary legislative powers. LOI No. 1155 was specifically directed to DBP, NDC and the Maritime Industry Authority to undertake the following tasks:

LETTER OF INSTRUCTIONS NO. 1155

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DEVELOPMENT BANK OF THE PHILIPPINESNATIONAL DEVELOPMENT COMPANYMARITIME INDUSTRY AUTHORITY

DIRECTING A REHABILITATION PLAN FOR GALLEON SHIPPING CORPORATION

xxx xxx xxx

1.NDC shall acquire 100% of the shareholdings of Galleon Shipping Corporation from its present owners for the amount of P46.7 million which is the amount originally contributed by the present shareholders, payable after five years with no interest cost.

2.NDC to immediately infuse P30 million into Galleon Shipping Corporation in lieu of is previously approved subscription to Philippine National Lines. In addition, NDC is to provide additional equity to Galleon as may be required.

3.DBP to advance for a period of three years from date hereof both the principal and the interest on Galleon's obligations falling due and to convert such advances into 12% preferred shares in Galleon Shipping Corporation.

4.DBP and NDC to negotiate a restructuring of loans extended by foreign creditors of Galleon.

5.MARINA to provide assistance to Galleon by mandating a rational liner shipping schedule considering existing freight volumes and to immediately negotiate a bilateral agreement with the United States in accordance with UNCTAD resolutions. IHTASa

xxx xxx xxx

Although LOI No. 1155 was undoubtedly issued at the time when the President exercised legislative powers granted under Amendment No. 6 of the 1973 Constitution, the language and purpose of LOI No. 1155 precludes this Court from declaring that said LOI had the force and effect of law in the absence of any of the conditions set out in Parong. The subject matter of LOI No. 1155 is not connected, directly or remotely, to a grave emergency or threat to the peace and order situation of the nation in particular or to the public interest in general. Nothing in the language of LOI No. 1155 suggests that it was issued to address the security of the nation. Obviously, LOI No. 1155 was in the nature of a mere administrative issuance directed to NDC, DBP and MARINA to undertake a policy measure, that is, to rehabilitate a private corporation.

NDC, not liable under the Corporation Code

The Court cannot accept POLIAND's theory that with the effectivity of LOI No. 1155, NDC ipso facto acquired the interests in GALLEON without disregarding applicable statutory requirements governing the acquisition of a corporation. Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation. 35 The merger, however, does not become effective upon the mere agreement of the constituent corporations. 36

As specifically provided under Section 79 37 of said Code, the merger shall only be effective upon the issuance of a certificate of merger by the Securities and Exchange Commission (SEC), subject to its prior determination that the merger is not inconsistent with the Code or existing laws. Where a party to the merger is a special corporation governed by its own charter, the Code particularly mandates that a favorable recommendation of the appropriate government agency should first be obtained. The issuance of the certificate of merger is crucial because not only

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does it bear out SEC's approval but also marks the moment whereupon the consequences of a merger take place. By operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights, and properties as well as liabilities shall be taken and deemed transferred to and vested in the surviving corporation. 38

The records do not show SEC approval of the merger. POLIAND cannot assert that no conditions were required prior to the assumption by NDC of ownership of GALLEON and its subsisting loans. Compliance with the statutory requirements is a condition precedent to the effective transfer of the shareholdings in GALLEON to NDC. In directing NDC to acquire the shareholdings in GALLEON, the President could not have intended that the parties disregard the requirements of law. In the absence of SEC approval, there was no effective transfer of the shareholdings in GALLEON to NDC. Hence, NDC did not acquire the rights or interests of GALLEON, including its liabilities.

DBP, not liable under LOI No. 1155

POLIAND argues that paragraph 3 of LOI No. 1155 unequivocally obliged DBP to advance the obligations of GALLEON. 39 DBP argues that POLIAND has no cause of action against it under LOI No. 1155 which is void and unconstitutional. 40

The Court affirms the appellate court's ruling that POLIAND does not have any cause of action against DBP under LOI No. 1155. Being a mere administrative issuance, LOI No. 1155 cannot be a valid source of obligation because it did not create any privity of contract between DBP and POLIAND or its predecessors-in-interest. At best, the directive in LOI No. 1155 was in the nature of a grant of authority by the President on DBP to enter into certain transactions for the satisfaction of GALLEON's obligations. There is, however, nothing from the records of the case to indicate that DBP had acted as surety or guarantor, or had otherwise accommodated GALLEON's obligations to POLIAND or its predecessors-in-interest.

II.Liability on maritime lien

On the second issue of whether or not NDC is liable to POLIAND for the payment of maritime lien, the appellate court ruled in the affirmative, to wit:

Non-acquisition of ownership of GALLEON notwithstanding, NDC is liable to pay ASIAN HARDWOOD's successor-in-interest POLIAND the equivalent of US$1,930,298.56 representing the proceeds of the loan from Asian Hardwood which were spent by GALLEON for ship modification and salaries of crew, to satisfy the preferred maritime liens over the proceeds of the foreclosure sale of the 5 vessels. 41

POLIAND contends that NDC can no longer raise the issue on the latter's liability for the payment of the maritime lien considering that upon appeal to the Court of Appeals, NDC did not assign it as an error. 42 Generally, an appellate court may only pass upon errors assigned. However, this rule is not without exceptions. In the following instances, the Court ruled that an appellate court is accorded a broad discretionary power to waive the lack of assignment of errors and consider errors not assigned:

(a)Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter; aDcTHE

(b)Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law;

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(c)Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice;

(d)Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored;

(e)Matters not assigned as errors on appeal but closely related to an error assigned;

(f)Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is dependent. 43

It is noteworthy that the question of NDC and DBP's liability on the maritime lien had been raised by POLIAND as an alternative cause of action against NDC and DBP and was passed upon by the trial court. The Court of Appeals, however, reversed the trial court's finding that NDC and DBP are liable to POLIAND for the payment of the credit advances and loan accommodations and instead found NDC to be solely liable on the preferred maritime lien although NDC did not assign it as an error.

The records, however, reveal that the issue on the liability on the preferred maritime lien had been properly raised and argued upon before the Court of Appeals not by NDC but by DBP who was also adjudged liable thereon by the trial court. DBP's appellant's brief 44 pointed out POLIAND's failure to present convincing evidence to prove its alternative cause of action, which POLIAND disputed in its appellee's brief. 45 The issue on the maritime lien is a matter of record having been adequately ventilated before and passed upon by the trial court and the appellate court. Thus, by way of exception, NDC is not precluded from again raising the issue before this Court even if it did not specifically assign the matter as an error before the Court of Appeals. Besides, this Court is clothed with ample authority to review matters, even if they are not assigned as errors in the appeal if it finds that their consideration is necessary in arriving at a just decision of the case. 46

Articles 578 and 580 of the Code of Commerce, not applicable

NDC cites Articles 578 47 and 580 48 of the Code of Commerce to bolster its argument that the foreclosure of the vessels extinguished all claims against the vessels including POLIAND's claim. 49 Article 578 of the Code of Commerce is not relevant to the facts of the instant case because it governs the sale of vessels in a foreign port. Said provision outlines the formal and registration requirements in order that a sale of a vessel on voyage or in a foreign port becomes effective as against third persons. On the other hand, the resolution of the instant case depends on the determination as to which creditor is entitled to the proceeds of the foreclosure sale of the vessels. Clearly, Article 578 of the Code of Commerce is inapplicable.

Article 580, while providing for the order of payment of creditors in the event of sale of a vessel, had been repealed by the pertinent provisions of Presidential Decree (P.D.) No. 1521, otherwise known as the Ship Mortgage Decree of 1978. In particular, Article 580 provides that in case of the judicial sale of a vessel for the payment of creditors, the debts shall be satisfied in the order specified therein. On the other hand, Section 17 of P.D. No. 1521 50 also provides that in the judicial or extrajudicial sale of a vessel for the enforcement of a preferred mortgage lien constituted in accordance with Section 2 of P.D. No. 1521, such preferred mortgage lien shall have priority over all pre-existing claims against the vessel, save for those claims enumerated under Section 17, which have preference over the preferred mortgage lien in the order stated

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therein. Since P.D. No. 1521 is a subsequent legislation and since said law in Section 17 thereof confers on the preferred mortgage lien on the vessel superiority over all other claims, thereby engendering an irreconcilable conflict with the order of preference provided under Article 580 of the Code of Commerce, it follows that the Code of Commerce provision is deemed repealed by the provision of P.D. No. 1521, as the posterior law. 51

P.D. No. 1521 is applicable, not theCivil Code provisions onconcurrence/preference ofcredits

Whether or not the order of preference under Section 17, P.D. No. 1521 may be properly applied in the instant case depends on the classification of the mortgage on the GALLEON vessels, that is, if it falls within the ambit of Section 2, P.D. No. 1521, defining how a preferred mortgage is constituted.

NDC and DBP both argue that POLIAND's claim cannot prevail over DBP's mortgage credit over the foreclosed vessels because the mortgage executed in favor of DBP pursuant to the October 10, 1979 Deed of Undertaking signed by GALLEON and DBP was an ordinary ship mortgage and not a preferred one, that is, it was not given in connection with the construction, acquisition, purchase or initial operation of the vessels, but for the purpose of guaranteeing GALLEON's foreign borrowings. 52

Section 2 of P.D. No. 1521 recognizes the constitution of a mortgage on a vessel, to wit:

SECTION 2. Who may Constitute a Ship Mortgage. — Any citizen of the Philippines, or any association or corporation organized under the laws of the Philippines, at least sixty per cent of the capital of which is owned by citizens of the Philippines may, for the purpose of financing the construction, acquisition, purchase of vessels or initial operation of vessels, freely constitute a mortgage or any other lien or encumbrance on his or its vessels and its equipment with any bank or other financial institutions, domestic or foreign. DTIcSH

If the mortgage on the vessel is constituted for the purpose stated under Section 2, the mortgage obtains a preferred status provided the formal requisites enumerated under Section 4 53 are complied with. Upon enforcement of the preferred mortgage and eventual foreclosure of the vessel, the proceeds of the sale shall be first applied to the claim of the mortgage creditor unless there are superior or preferential liens, as enumerated under Section 17, namely:

SECTION 17.Preferred Maritime Lien, Priorities, Other Liens. — (a) Upon the sale of any mortgaged vessel in any extra-judicial sale or by order of a district court of the Philippines in any suit in rem in admiralty for the enforcement of a preferred mortgage lien thereon, all pre-existing claims in the vessel, including any possessory common-law lien of which a lienor is deprived under the provisions of Section 16 of this Decree, shall be held terminated and shall thereafter attach in like amount and in accordance with the priorities established herein to the proceeds of the sale. The preferred mortgage lien shall have priority over all claims against the vessel, except the following claims in the order stated: (1) expenses and fees allowed and costs taxed by the court and taxes due to the Government; (2) crew's wages; (3) general average; (4) salvage including contract salvage; (5) maritime liens arising prior in time to the recording of the preferred mortgage; (6) damages arising out of tort; and (7) preferred mortgage registered prior in time.

(b)If the proceeds of the sale should not be sufficient to pay all creditors included in one number or grade, the residue shall be divided among them pro rata. All credits not paid, whether fully or partially shall subsist as ordinary credits enforceable by personal action

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against the debtor. The record of judicial sale or sale by public auction shall be recorded in the Record of Transfers and Encumbrances of Vessels in the port of documentation. (Emphasis supplied.)

There is no question that the mortgage executed in favor of DBP is covered by P.D. No. 1521. Contrary to NDC's assertion, the mortgage constituted on GALLEON's vessels in favor of DBP may appropriately be characterized as a preferred mortgage under Section 2, P.D. No. 1521 because GALLEON constituted the same for the purpose of financing the construction, acquisition, purchase of vessels or initial operation of vessels. While it is correct that GALLEON executed the mortgage in consideration of DBP's guarantee of the prompt payment of GALLEON's obligations to the Japanese lenders, DBP's undertaking to pay the Japanese banks was a condition sine qua non to the acquisition of funds for the purchase of the GALLEON vessels. Without DBP's guarantee, the Japanese lenders would not have provided the funds utilized in the purchase of the GALLEON vessels. The mortgage in favor of DBP was therefore constituted to facilitate the acquisition of funds necessary for the purchase of the vessels.

NDC adds that being an ordinary ship mortgage, the Civil Code provisions on concurrence and preference of credits and not P.D. No. 1521 should govern. NDC contends that under Article 2246, in relation to Article 2241 of the Civil Code, the credits guaranteed by a chattel mortgage upon the thing mortgaged shall enjoy preference (with respect to the thing mortgaged), to the exclusion of all others to the extent of the value of the personal property to which the preference exists. 54Following NDC's theory, DBP's mortgage credit, which is fourth in the order of preference under Article 2241, is superior to POLIAND's claim, which enjoys no preference.

NDC's argument does not persuade the Court.

The provision of P.D. No. 1521 on the order of preference in the satisfaction of the claims against the vessel is the more applicable statute to the instant case compared to the Civil Code provisions on the concurrence and preference of credit. General legislation must give way to special legislation on the same subject, and generally be so interpreted as to embrace only cases in which the special provisions are not applicable. 55

POLIAND's alternative cause of action for the payment of maritime liens is based on Sections 17 and 21 of P.D. No. 1521. POLIAND also contends that by virtue of the directive in LOI No. 1195 on NDC to discharge maritime liens to allow the vessels to engage in international business, NDC is liable therefor. 56

POLIAND's maritime lien is superiorto DBP's mortgage lien

Before POLIAND's claim may be classified as superior to the mortgage constituted on the vessel, it must be shown to be one of the enumerated claims which Section 17, P.D. No. 1521 declares as having preferential status in the event of the sale of the vessel. One of such claims enumerated under Section 17, P.D. No. 1521 which is considered to be superior to the preferred mortgage lien is a maritime lien arising prior in time to the recording of the preferred mortgage. Such maritime lien is described under Section 21, P.D. No. 1521, which reads:

SECTION 21.Maritime Lien for Necessaries; persons entitled to such lien. — Any person furnishing repairs, supplies, towage, use of dry dock or marine railway, or other necessaries to any vessel, whether foreign or domestic, upon the order of the owner of such vessel, or of a person authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall be necessary to allege or prove that credit was given to the vessel.TCaSAH

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Under the aforequoted provision, the expense must be incurred upon the order of the owner of the vessel or its authorized person and prior to the recording of the ship mortgage. Under the law, it must be established that the credit was extended to the vessel itself. 57

The trial court found that GALLEON's advances obtained from Asian Hardwood were used to cover for the payment of bunker oil/fuel, unused stores and oil, bonded stores, provisions, and repair and docking of the GALLEON vessels. 58 These expenses clearly fall under Section 21, P.D. No. 1521.

The trial court also found that the advances from Asian Hardwood were spent for ship modification cost and the crew's salary and wages. DBP contends that a ship modification cost is omitted under Section 17, P.D. No. 1521, hence, it does not have a status superior to DBP's preferred mortgage lien.

As stated in Section 21, P.D. No. 1521, a maritime lien may consist in "other necessaries spent for the vessel." The ship modification cost may properly be classified under this broad category because it was a necessary expenses for the vessel's navigation. As long as an expense on the vessel is indispensable to the maintenance and navigation of the vessel, it may properly be treated as a maritime lien for necessaries under Section 21, P.D. No. 1521.

With respect to the claim for salary and wages of the crew, there is no doubt that it is also one of the enumerated claims under Section 17, P.D. No. 1521, second only to judicial costs and taxes due the government in preference and, thus, having a status superior to DBP's mortgage lien.

All told, the determination of the existence and the amount of POLIAND's claim for maritime lien is a finding of fact which is within the province of the courts below. Findings of fact of lower courts are deemed conclusive and binding upon the Supreme Court except when the findings are grounded on speculation, surmises or conjectures; when the inference made is manifestly mistaken, absurd or impossible; when there is grave abuse of discretion in the appreciation of facts; when the factual findings of the trial and appellate courts are conflicting; when the Court of Appeals, in making its findings, has gone beyond the issues of the case and such findings are contrary to the admissions of both appellant and appellee; when the judgment of the appellate court is premised on a misapprehension of facts or when it has failed to notice certain relevant facts which, if properly considered, will justify a different conclusion; when the findings of fact are conclusions without citation of specific evidence upon which they are based; and when findings of fact of the Court of Appeals are premised on the absence of evidence but are contradicted by the evidence on record. 59 The Court finds no sufficient justification to reverse the findings of the trial court and the appellate court in respect to the existence and amount of maritime lien.

Only NDC is liable on the maritime lien

POLIAND maintains that DBP is also solidarily liable for the payment of the preferred maritime lien over the proceeds of the foreclosure sale by virtue of Section 17, P.D. No. 1521. It claims that since the lien was incurred prior to the constitution of the mortgage on January 25, 1982, the preferred maritime lien attaches to the proceeds of the sale of the vessels and has priority over all claims against the vessels in accordance with Section 17, P.D. No. 1521. 60

In its defense, DBP reiterates the following arguments: (1) The salary and crew's wages cannot be claimed by POLIAND or its predecessors-in-interest because none of them is a sailor or

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mariner; 61 (2) Even if conceded, POLIAND's preferred maritime lien is unenforceable pursuant to Article 1403 of the Civil Code; and (3) POLIAND's claim is barred by prescription and laches. 62

The first argument is absurd. Although POLIAND or its predecessors-in-interest are not sailors entitled to wages, they can still make a claim for the advances spent for the salary and wages of the crew under the principle of legal subrogation. As explained in Philippine National Bank v. Court of Appeals, 63 a third person who satisfies the obligation to an original maritime lienor may claim from the debtor because the third person is subrogated to the rights of the maritime lienor over the vessel. The Court explained as follows:

From the foregoing, it is clear that the amount used for the repair of the vessel M/V "Asean Liberty" was advanced by Citibank and was utilized for the purpose of paying off the original maritime lienor, Hong Kong United Dockyards, Ltd. As a person not interested in the fulfillment of the obligation between PISC and Hong Kong United Dockyards, Ltd., Citibank was subrogated to the rights of Hong Kong United Dockyards, Ltd. as a maritime lienor over the vessel, by virtue of Article 1302, par. 2 of the New Civil Code. By definition, subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. Considering that Citibank paid off the debt of PISC to Hong Kong United Dockyards, Ltd. it became the transferee of all the rights of Hong Kong Dockyards, Ltd. as against PISC, including the maritime lien over the vessel M/V "Asian Liberty." 64

DBP's reliance on the Statute of Frauds is misplaced. Article 1403 (2) of the Civil Code, which enumerates the contracts covered by the Statue of Frauds, is inapplicable. To begin with, there is no privity of contract between POLIAND or its predecessors-in-interest, on one hand, and DBP, on the other. POLIAND hinges its claim on the maritime lien based on LOI No. 1195 and P.D. No. 1521, and not on any contract or agreement. HTSaEC

Neither can DBP invoke prescription or laches against POLIAND. Under Article 1144 of the Civil Code, an action upon an obligation created by law must be brought within ten years from the time the right of action accrues. The right of action arose after January 15, 1982, when NDC partially paid off GALLEON's obligations to POLIAND's predecessor-in-interest, Asian Hardwood. At that time, the prescriptive period for the enforcement by action of the balance of GALLEON's outstanding obligations had commenced. Prescription could not have set in because the prescriptive period was tolled when POLIAND made a written demand for the satisfaction of the obligation on September 24, 1991, or before the lapse of the ten-year prescriptive period. Laches also do not lie because there was no unreasonable delay on the part of POLIAND in asserting its rights. Indeed, it instituted the instant suit seasonably.

All things considered, however, the Court finds that only NDC is liable for the payment of the maritime lien. A maritime lien is akin to a mortgage lien in that in spite of the transfer of ownership, the lien is not extinguished. The maritime lien is inseparable from the vessel and until discharged, it follows the vessel. Hence, the enforcement of a maritime lien is in the nature and character of a proceeding quasi in rem. 65 The expression "action in rem" is, in its narrow application, used only with reference to certain proceedings in courts of admiralty wherein the property alone is treated as responsible for the claim or obligation upon which the proceedings are based. 66 Considering that DBP subsequently transferred ownership of the vessels to NDC, the Court holds the latter liable on the maritime lien. Notwithstanding the subsequent transfer of the vessels to NDC, the maritime lien subsists.

This is a unique situation where the extrajudicial foreclosure of the GALLEON vessels took place without the intervention of GALLEON's other creditors including POLIAND's predecessors-in-interest who were apparently left in the dark about the foreclosure proceedings. At that time, GALLEON was already a failing corporation having borrowed large sums of money from banks and financial institutions. When GALLEON defaulted in the payment of its obligations to DBP, the

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latter foreclosed on its mortgage over the GALLEON ships. The other creditors, including POLIAND's predecessors-in-interest who apparently had earlier or superior rights over the foreclosed vessels, could not have participated as they were unaware and were not made parties to the case.

On this note, the Court believes and so holds that the institution of the extrajudicial foreclosure proceedings was tainted with bad faith. It took place when NDC had already assumed the management and operations of GALLEON. NDC could not have pleaded ignorance over the existence of a prior or preferential lien on the vessels subject of foreclosure. As aptly held by the Court of Appeals:

NDC's claim that even if maritime liens existed over the proceeds of the foreclosure sale of the vessels which it subsequently purchased from DBP, it is not liable as it was a purchaser in good faith fails, given the fact that in its "actual control over the management and operations" of GALLEON, it was put on notice of the various obligations of GALLEON including those secured from ASIAN HARDWOOD as in fact it even paid ASIAN HARDWOOD US$1,000,000.00 in partial settlement of GALLEON's obligations, before it (NDC) mortgaged the 5 vessels to DBP on January 25, 1982.

Parenthetically, LOI 1195 directed NDC to "discharge such maritime liens as may be necessary to allow the foreclosed vessels to engage on the international shipping business."

In fine, it is with respect to POLIAND's claim for payment of US$1,930,298.56 representing part of the proceeds of GALLEON's loan which was spent by GALLEON "for ship modification and salaries of crew" that NDC is liable. 67

Thus, NDC cannot claim that it was a subsequent purchaser in good faith because it had knowledge that the vessels were subject to various liens. At the very least, to evince good faith, NDC could have inquired as to the existence of other claims against the vessels apart from DBP's mortgage lien. Considering that NDC was also in a position to know or discover the financial condition of GALLEON when it took over its management, the lack of notice to GALLEON's creditors suggests that the extrajudicial foreclosure was effected to prejudice the rights of GALLEON's other creditors. ACETID

NDC also cannot rely on Administrative Order No. 64, 68 which directed the transfer of the vessels to the APT, on its hypothesis that such transfer extinguished the lien. APT is a mere conduit through which the assets acquired by the National Government are provisionally held and managed until their eventual disposal or privatization. Administrative Order No. 64 did not divest NDC of its ownership over the GALLEON vessels because APT merely holds the vessels in trust for NDC until the same are disposed. Even if ownership was transferred to APT, that would not be sufficient to discharge the maritime lien and deprive POLIAND of its recourse based on the lien. Such denouement would smack of denial of due process and taking of property without just compensation.

NDC's liability for attorney's fees

The lower court awarded attorney's fees to POLIAND in the amount of P1,000,000.00 on account of the amount involved in the case and the protracted character of the litigation. 69 The award was affirmed by the Court of Appeals as against NDC only. 70

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This Court finds no reversible error with the award as upheld by the appellate court. Under Article 2208 71 of the Civil Code, attorney's fees may be awarded inter aliawhen the defendant's act or omission has compelled the plaintiff to incur expenses to protect his interest or in any other case where the court deems it just and equitable that attorney's fees and expenses of litigation be recovered.

One final note. There is a discrepancy between the dispositive portion of the Court of Appeals' Decision and the body thereof with respect to the amount of the maritime lien in favor of POLIAND. The dispositive portion ordered NDC to pay POLIAND "the amount of US$1,920,298.56" plus interest 72 despite a finding that NDC's liability to POLIAND represents the maritime lien 73 which according to the complaint 74 is the alternative cause of action of POLIAND in the smaller amount of US$1,193,298.56, as prayed for by POLIAND in its complaint.

The general rule is that where there is conflict between the dispositive portion or the fallo and the body of the decision, the fallo controls. This rule rests on the theory that the fallo is the final order while the opinion in the body is merely a statement ordering nothing. However, where the inevitable conclusion from the body of the decision is so clear as to show that there was a mistake in the dispositive portion, the body of the decision will prevail. 75 In the instant case, it is clear from the trial court records and the Court of Appeals' Rollo that the bigger amount awarded in the dispositive portion of the Court of Appeals' Decision was a typographical mistake. Considering that the appellate court's Decision merely affirmed the trial court's finding with respect to the amount of maritime lien, the bigger amount stated in the dispositive portion of the Court of Appeals' Decision must have been awarded through inadvertence.

WHEREFORE, both Petitions in G.R. No. 143866 and G.R. No. 143877 are DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 53257 is MODIFIED to the extent that National Development Company is liable to Poliand Industrial Limited for the amount of One Million One Hundred Ninety Three Thousand Two Hundred Ninety Eight US Dollars and Fifty-Six US Cents (US$ 1,193,298.56), plus interest of 12% per annum computed from 25 September 1991 until fully paid. In other respects, said Decision is AFFIRMED. No pronouncement as to costs. THcEaS

SO ORDERED.

Puno, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.

[G.R. No. L-49407. August 19, 1988.]

NATIONAL DEVELOPMENT COMPANY, petitioner-appellant, vs. THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-appellees.

[G.R. No. L-49469. August 19, 1988.]

MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant, vs. THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-appellees.

Balgos & Perez Law Office for private respondent in both cases.

SYLLABUS

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1.CIVIL LAW; COMMON CARRIERS; LIABILITY FOR GOODS; GOVERNING LAW; CASE OF EASTERN SHIPPING LINES INC. V. INTERMEDIATE APPELLATE COURT CITED. — This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (150 SCRA 469-470 [1987]) where it was held under similar circumstances that "the law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of Commerce and by special laws (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to the provisions of the Civil Code.

2.ID.; ID.; ID.; ID.; ID.; CASE AT BAR. — In the case at bar, it has been established that the goods in question are transported from San Francisco, California and Tokyo, Japan to the Philippines and that they were lost or damaged due to a collision which was found to have been caused by the negligence or fault of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of the Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan.

3.ID.; ID.; DUTY; EXTRAORDINARY DILIGENCE IN HANDLING GOODS; DEFENSE IN OVERCOMING PRESUMPTION OF NEGLIGENCE. — Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them according to all circumstances of each case. Accordingly, under Article 1735 of the same Code, in all cases other than those mentioned is Article 1734 thereof, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by law.

4.ID.; ID.; COLLISION OF VESSELS; GOVERNED BY THE CODE OF COMMERCE. — It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no reversible error can be found in respondent court's application to the case at bar of Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels.

5.MERCANTILE LAW; CODE OF COMMERCE; COLLISION OF VESSELS; LIABILITY FOR DAMAGES SUFFERED. — More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred after an expert appraisal. But more in point to the instant case is Article 827 of the same Code, which provides that if the collision is imputable to both vessels, each one shall suffer its own damages and both shall be solidarily responsible for the losses and damages suffered by their cargoes.

6.ID.; ID.; ID.; ID.; PRIMARY LIABILITY OF SHIPOWNER OF CARRIER. — Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or carrier, is not exempt from liability for damages arising from collision due to the fault or negligence of the captain. Primary liability is imposed on the shipowner or carrier in recognition of the universally accepted doctrine that the shipmaster or captain is merely the representative of the owner who has the actual or constructive control over the conduct of the voyage (Yeung Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).

7.ID.; ID.; APPLICABILITY OF THE CODE OF COMMERCE; NOT REPEALED NOR LIMITED BY THE CARRIAGE OF GOODS BY SEA ACT. — There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does not specifically provide for

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the subject of collision, said Act in no uncertain terms, restricts its application "to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade." Under Section 1 thereof, it is explicitly provided that "nothing in this Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its application." By such incorporation, it is obvious that said law not only recognizes the existence of the Code of Commerce, but more importantly does not repeal nor limit its application.

8.CIVIL LAW; COMMON CARRIERS; LIABILITY FOR LOSS OF GOODS; SOLIDARY LIABILITY OF THE OWNER AND AGENT OF THE OFFENDING VESSEL. — It is well settled that both the owner and agent of the offending vessel are liable for the damage done where both are impleaded; that in case of collision, both the owner and the agent are civilly responsible for the acts of the captain; that while it is true that the liability of the naviero in the sense of charterer or agent, is not expressly provided in Article 826 of the Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence under the Civil Code but more specially as regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the Court held that both the owner and agent (Naviero) should be declared jointly and severally liable, since the obligation which is the subject of the action had its origin in a tortious act and did not arise from contract. Consequently, the agent, even though he may not be the owner of the vessel, is liable to the shippers and owners of the cargo transported by it, for losses and damages occasioned to such cargo, without prejudice, however, to his rights against the owner of the ship, to the extent of the value of the vessel, its equipment, and the freight.

9.ID.; ID.; ID.; WHERE LIABILITY FOR LOSS OF GOODS CANNOT BE LIMITED. — MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and corroborated no less by invoices offered as evidence during the trial. Besides, common carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barretto et al., (51 Phil. 90 [1927]) "cannot limit its liability for injury to a less of goods where such injury or loss was caused by its own negligence." Negligence of the captains of the colliding vessel being the cause of the collision, and the cargoes not being jettisoned to save some of the cargoes and the vessel, the trial court and the Court of Appeals acted correctly in not applying the law on averages (Articles 806 to 818, Code of Commerce).

D E C I S I O N

PARAS, J p:

These are appeals by certiorari from the decision ** of the Court of Appeals in CA G.R. No. L-46513-R entitled "Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines and National Development Company defendant-appellants," affirming in toto the decision *** in Civil Case No. 60641 of the then Court of First Instance of Manila, Sixth Judicial District, the dispositive portion of which reads:

"WHEREFORE, judgment is hereby rendered ordering the defendants National Development Company and Maritime Company of the Philippines, to pay jointly and severally, to the plaintiff Development Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY FOUR THOUSAND AND NINE HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS (364, 915.86) with the legal interest thereon from the filing of plaintiffs complaint on April 22, 1965 until fully paid, plus TEN THOUSAND PESOS (P10,000.00) by way of damages as and for attorney's fee.

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"On defendant Maritime Company of the Philippines' cross-claim against the defendant National Development Company, judgment is hereby rendered, ordering the National Development Company to pay the cross-claimant Maritime Company of the Philippines may voluntarily or by compliance to a writ of execution pay to the plaintiff pursuant to the judgment rendered in this case.

"With costs against the defendant Maritime Company of the Philippines."

(pp. 34-35, Rollo, GR No. L-49469)

The facts of these cases as found by the Court of Appeals, are as follows:

"The evidence before us shows that in accordance with a memorandum agreement entered into between defendants NDC and MCP on September 13, 1962, defendant NDC as the first preferred mortgagee of three ocean going vessels including one with the name 'Doña Nati' appointed defendant MCP as its agent to manage and operate said vessel for and in its behalf and account (Exh. A). Thus, on February 28, 1964 the E. Philipp Corporation of New York loaded on board the vessel 'Doña Nati' at San Francisco, California, a total of 1,200 bales of American raw cotton consigned to the order of Manila Banking Corporation, Manila and the People's Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A). Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of 200 cartons of sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M&M-1). En route to Manila the vessel Doña Nati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a Japanese vessel 'SS Yasushima Maru' as a result of which 550 bales of aforesaid cargo of American raw cotton were lost and/or destroyed, of which 535 bales as damaged were landed and sold on the authority of the General Average Surveyor for Yen 6,045,-500 and 15 bales were not landed and deemed lost (Exh. G). The damaged and lost cargoes was worth P344,977.86 which amount, the plaintiff as insurer, paid to the Riverside Mills Corporation as holder of the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A, K-5-A, A-2, N-3 and R-3). Also considered totally lost were the aforesaid shipment of Kyokuto, Boekui, Kaisa Ltd., consigned to the order of Manila Banking Corporation, Manila, acting for Guilcon, Manila. The total loss was P19,938.00 which the plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of lading (Exhibits M-1 and S-3). Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to the consignees or their successors-in-interest, for the said lost or damaged cargoes. Hence, plaintiff filed this complaint to recover said amount from the defendants-NDC and MCP as owner and ship agent respectively, of the said 'Doña Nati' vessel." (Rollo, L-49469, p. 38).

On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of First Instance of Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-6).

Interposing the defense that the complaint states no cause of action and even if it does, the action has prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 714). DISC filed an Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal, pp. 14-24). On June 29, 1965, the trial court deferred the resolution of the motion to dismiss till after the trial on the merits (Record on Appeal, p. 32). On June 8, 1965, MCP filed its answer with counterclaim and cross-claim against NDC.

NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24). It also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However, on October 16, 1965, NDC's answer to DISC's complaint was stricken off from the

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record for its failure to answer DISC's written interrogatories and to comply with the trial court's order dated August 14, 1965 allowing the inspection or photographing of the memorandum of agreement it executed with MCP. Said order of October 16, 1965 likewise declared NDC in default (Record on Appeal, p. 44). On August 31, 1966, NDC filed a motion to set aside the order of October 16, 1965, but the trial court denied it in its order dated September 21, 1966.

On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered a decision ordering the defendants MCP and NDC to pay jointly and solidarily to DISC the sum of P364,915.86 plus the legal rate of interest to be computed from the filing of the complaint on April 22, 1965, until fully paid and attorney's fees of P10,000.00. Likewise, in said decision, the trial court granted MCP's cross-claim against NDC.

MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after its motion to set aside the decision was denied by the trial court in its order dated February 13, 1970.

On November 17, 1978, the Court of Appeals promulgated its decision affirming in toto the decision of the trial court.

Hence these appeals by certiorari.

NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On July 25, 1979, this Court ordered the consolidation of the above cases (Rollo, p. 103). On August 27, 1979, these consolidated cases were given due course (Rollo, p. 108) and submitted for decision on February 29, 1980 (Rollo, p. 136).

In its brief, NDC cited the following assignments of error:

I

THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL "DOÑA NATI" WITH THE "YASUSHIMA MARU" OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE TERRITORIAL JURISDICTION OF THE PHILIPPINES.

II

THE COURT OF APPEALS ERRED IN NOT DISMISSING THE COMPLAINT FOR REIMBURSEMENT FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-Appellant National Development Company; p. 96, Rollo).

On its part, MCP assigned the following alleged errors:

I

THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS AGAINST PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING THE COMPLAINT.

II

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THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION OF RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS AGAINST HEREIN PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF LIMITATION AND HAS ALREADY PRESCRIBED.

III

THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE RESPONDENT'S EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION OF THE SS DOÑA NATI AND THE YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE YASUSHIMA MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS DOÑA NATI.

IV

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP AGENT OR NAVIERO OF SS DOÑA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO RESULTING IN THE COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU.

V

THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN HOLDING THAT PARAGRAPH 10 OF THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE THERE BEING NO GENERAL AVERAGE TO SPEAK OF.

VI

THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL DEVELOPMENT COMPANY AND MARITIME COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEY'S FEES INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE COSTS.

(pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121, Rollo).

The pivotal issue in these consolidated cases is the determination of which laws govern loss or destruction of goods due to collision of vessels outside Philippine waters, and the extent of liability as well as the rules of prescription provided thereunder.

The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to the case at bar and not the Civil Code or the Code of Commence. Under Section 4 (2) of said Act, the carrier is not responsible for the loss or damage resulting from the "act, neglect or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship." Thus, NDC insists that based on the findings of the trial court which were adopted by the Court of Appeals, both pilots of the colliding vessels were at fault and negligent, NDC would have been relieved of liability under the Carriage of Goods by Sea Act.

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Instead, Article 287 of the Code of Commerce was applied and both NDC and MCP were ordered to reimburse the insurance company for the amount the latter paid to the consignee as earlier stated.

This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (150 SCRA 469-470 [1987]) where it was held under similar circumstances that "the law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to the Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of Commerce and by special laws (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely suppletory to the provisions of the Civil Code.

In the case at bar, it has been established that the goods in question are transported from San Francisco, California and Tokyo, Japan to the Philippines and that they were lost or damaged due to a collision which was found to have been caused by the negligence or fault of both captains of the colliding vessels. Under the above ruling, it is evident that the laws of the Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay, Japan.

Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them according to all circumstances of each case. Accordingly, under Article 1735 of the same Code, in all cases other than those mentioned is Article 1734 thereof, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence required by law.

It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no reversible error can be found in respondent court's application to the case at bar of Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively with collision of vessels.

More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred after an expert appraisal. But more in point to the instant case is Article 827 of the same Code, which provides that if the collision is imputable to both vessels, each one shall suffer its own damages and both shall be solidarily responsible for the losses and damages suffered by their cargoes.

Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or carrier, is not exempt from liability for damages arising from collision due to the fault or negligence of the captain. Primary liability is imposed on the shipowner or carrier in recognition of the universally accepted doctrine that the shipmaster or captain is merely the representative of the owner who has the actual or constructive control over the conduct of the voyage (Yeung Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).

There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does not specifically provide for the subject of collision, said Act in no

205

uncertain terms, restricts its application "to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade." Under Section 1 thereof, it is explicitly provided that "nothing in this Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its application." By such incorporation, it is obvious that said law not only recognizes the existence of the Code of Commerce, but more importantly does not repeal nor limit its application.

On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety Corporation, has no cause of action against it because the latter did not prove that its alleged subrogers have either the ownership or special property right or beneficial interest in the cargo in question; neither was it proved that the bills of lading were transferred or assigned to the alleged subrogers; thus, they could not possibly have transferred any right of action to said plaintiff-appellee in this case. (Brief for the Maritime Company of the Philippines, p. 16).

The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly endorsed bills of lading covering the shipments in question and an examination of the invoices in particular, shows that the actual consignees of the said goods are the aforementioned companies. Moreover, no less than MCP itself issued a certification attesting to this fact. Accordingly, as it is undisputed that the insurer, plaintiff-appellee paid the total amount of P364,915.86 to said consignees for the loss or damage of the insured cargo, it is evident that said plaintiff-appellee has a cause of action to recover (what it has paid) from defendant-appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p. 43).

MCP next contends that it can not be liable solidarily with NDC because it is merely the manager and operator of the vessel Doña Nati, not a ship agent. As the general managing agent, according to MCP, it can only be liable if it acted in excess of its authority.

As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13, 1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include the concept of Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers of the owner of the vessel, including the power to contract in the name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the circumstances, MCP cannot escape liability.

It is well settled that both the owner and agent of the offending vessel are liable for the damage done where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of collision, both the owner and the agent are civilly responsible for the acts of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is true that the liability of the naviero in the sense of charterer or agent, is not expressly provided in Article 826 of the Code of Commerce, it is clearly deducible from the general doctrine of jurisprudence under the Civil Code but more specially as regards contractual obligations in Article 586 of the Code of Commerce. Moreover, the Court held that both the owner and agent (Naviero) should be declared jointly and severally liable, since the obligation which is the subject of the action had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner of the vessel, is liable to the shippers and owners of the cargo transported by it, for losses and damages occasioned to such cargo, without prejudice, however, to his rights against the owner of the ship, to the extent of the value of the vessel, its equipment, and the freight (Behn, Meyer Y Co. v. McMicking et al., 11 Phil. 276 [1908]).

As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the law on averages should be applied in determining their liability.

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MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and corroborated no less by invoices offered as evidence during the trial. Besides, common carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barretto et al., (51 Phil. 90 [1927]) "cannot limit its liability for injury to a less of goods where such injury or loss was caused by its own negligence." Negligence of the captains of the colliding vessel being the cause of the collision, and the cargoes not being jettisoned to save some of the cargoes and the vessel, the trial court and the Court of Appeals acted correctly in not applying the law on averages (Articles 806 to 818, Code of Commerce).

MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima Maru and not to the Japanese Coast pilot navigating the vessel Doña Nati, need not be discussed lengthily as said claim is not only at variance with NDC's posture, but also contrary to the factual findings of the trial court affirmed no less by the Court of Appeals, that both pilots were at fault for not changing their excessive speed despite the thick fog obstructing their visibility.

Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow trans-shipment of the cargo, which simply means that the date of arrival of the ship Doña Nati on April 18, 1964 was merely tentative to give allowances for such contingencies that said vessel might not arrive on schedule at Manila and therefore, would necessitate the trans-shipment of cargo, resulting in consequent delay of their arrival. In fact, because of the collision, the cargo which was supposed to arrive in Manila on April 18, 1964 arrived only on June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in question been saved, they could have arrived in Manila on the above-mentioned dates. Accordingly, the complaint in the instant case was filed on April 22, 1965, that is, long before the lapse of one (1) year from the date the lost or damaged cargo "should have been delivered" in the light of Section 3, sub-paragraph (6) of the Carriage of Goods by Sea Act.

PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision of the respondent Appellate Court is AFFIRMED.

SO ORDERED.

Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

[G.R. No. 10195. December 29, 1916.]

YU CON, plaintiff-appellee, vs. GLICERIO IPIL, NARCISO LAURON, and JUSTO SOLAMO, defendants-appellants.

Felix Sevilla y Macam for appellants.

Juan Singson and Dionisio Jakosalem for appellee.

SYLLABUS

1.SHIPPING; LIABILITY OF MASTER AND SUPERCARGO OF VESSEL FOR LOSS OF MONEY ENTRUSTED TO THEIR CARE. — A certain sum of money was delivered by Y to G and J, master and supercargo, respectively, of a small craft engaged in the coastwise trade in the waters of

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the Philippine Islands, to be carried together with various merchandise from the port of Cebu to the town of Catmon of the Province of Cebu, upon payment of a fixed sum. This money disappeared from said craft, and it was not proven nor was there any indication that it was stolen by persons not belonging to the boat, nor that its disappearance or loss was due to a fortuitous cause or to force majeure. Held: That, as G and J, the carriers of said sum received from Y for its delivery to a shop in the town of Catmon where it had been consigned, were vested with the character of depositories of the same, and as they failed to exercise, in its safe-keeping, the diligence required by the nature of the obligation assumed by them and required by the circumstances of the time and the place, they are liable, pursuant to the provisions of articles 1601 and 1602, in relation to articles 1783, 1784, and 1770 of the Civil Code, for its loss or misplacement, and are obliged to deliver it to Y, with the corresponding interest thereon as an indemnity for the damage caused him through loss of the same.

2.ID.; WHAT CONSTITUTES A VESSEL. — A minor craft used for the transportation of merchandise by sea and to make voyages from one port to another of these Islands, equipped and victualed for this purpose by its owner, is a vessel, within the purview of the law and for the determination of the character and effect of the relations created between the owners of the merchandise laden on it and its owner, according to the meaning and construction given to the wordvessel by the Mercantile Code in treating of maritime commerce under Title 1, Book 3.

3.ID.; LIABILITY OF SHIPOWNER FOR LOSSES CAUSED BY CAPTAIN. — The owner of a minor craft who has equipped and victualed it for the purpose of using it in the transportation of merchandise from one port to another of these Islands is under the law a shipowner, and the master of the craft is to be considered as its captain in the legal acceptation of this word, and the former must be held civilly liable for indemnities in favor of third parties to which the conduct of the latter of them may give rise in the custody of the effects laden on the craft, and for all losses which, through his fault or negligence, may occur to the merchandise or effects delivered to him for that transportation as well as for the damages suffered by their transportation, as those who contracted with him, in consequence of misdemeanors and crimes committed by him or by the members of the crew of the craft.

D E C I S I O N

ARAULLO, J p:

The purpose of the action brought in these proceedings is to enable the plaintiff to recover from the defendants jointly and severally the sum of P450, which had been delivered by the plaintiff to the first and third of the above-named defendants, master and supercargo, respectively, of a banca named Maria belonging to the second defendant, to be carried, together with various merchandise belonging to the plaintiff, from the port of Cebu to the town of Catmon of the Province of Cebu. By virtue of the contract executed between the said second defendant and the plaintiff, the money and merchandise were to be transported by the said craft between the points above-named in consideration of the payment of a certain sum for each voyage. The money disappeared from said craft during the night of October 18, 1911, while it was anchored in the port of Cebu and ready to sail for its destination, Catmon, and was not afterwards found. The plaintiff based his action on the charge that the disappearance of said sum was due to the abandonment, negligence, or voluntary breach, on the part of the defendants, of the duty they had in respect to the safe-keeping of the aforementioned sum.

The defendants, besides denying the allegations of the complaint, pleaded in special defense that the plaintiff, at his own expense and under his exclusive responsibility, chartered

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the said banca, the property of the defendant Lauron, for the fixed period of three days, at the price of P10 per diem, and that, through the misfortune, negligence, or abandonment of the plaintiff himself, the loss complained of occurred, while said banca was at anchor in the port of Cebu, and was caused by theft committed by unknown thieves. They further alleged that said defendant Lauron, the owner of the banca merely placed this craft at the disposal of the plaintiff for the price and period agreed upon, and did not go with the banca on its voyage from Catmon to Cebu. As a counterclaim, the defendants also asked that the plaintiff be ordered to pay the freight agreed upon, which had not yet been paid, amounting to P80, plus the sum of P70, as an indemnity for the losses and damages caused them by the attachment of the banca, issued at the instance of the plaintiff upon filing his complaint. They also prayed for the additional sum of P100, for the deterioration of the said banca, and also that of P200 for other deterioration suffered by the same since November, 1911, and which had not been paid for. Finally, the defendants asked to be absolved from the complaint.

Before commencing the hearing of this case, the defendants made a verbal motion asking that the plaintiff be declared in default, with respect to the counterclaim filed by them in their answer. On the same date, the plaintiff presented his answer to said counterclaim, denying each and all of the allegations thereof and of the defendants' special defense. The aforementioned motion was overruled by the court, and the defendants excepted.

At the termination of the trial, the court, in view of the evidence adduced, held that there was no room to doubt that the sole cause of the disappearance of the money from the said banca was the negligence of the master and the supercargo, the defendants Ipil and Solamo, respectively, and that the defendant Narciso Lauron was responsible for that negligence, as owner of the banca, pursuant to articles 586, 587, and 618 of the Code of Commerce, the plaintiff therefore being entitled to recover the amount lost. Judgment was rendered on April 20, 1914, in favor of the plaintiff and against the defendants jointly and severally for the sum of P450, with interest thereon at the rate of 6 per cent per annum from the date of filing of the complaint, October 24, 1911, with costs. The plaintiff was absolved from the defendant's counterclaim. From this judgment the defendants excepted and at the same time moved for a new trial. Their motion was denied, to which ruling they also excepted, and, through the proper bill of exceptions, entered an appeal to this Supreme Court. In their brief they allege that the trial court erred:

1.In applying articles 586, 587, and 618 of the Code of Commerce in favor of the plaintiff;

2.In overruling the motion for default presented by the defendants and in sentencing the defendants jointly and severally to pay the plaintiff the amount mentioned in the judgment; and

3.In absolving the plaintiff from the defendants' counterclaim.

The evidence shows that the plaintiff Yu Con, a merchant and a resident of the town of San Nicolas, of the city of Cebu, engaged in the sale of cloth and domestic articles and having a share in a shop, or small store, situated in the town of Catmon, of said province, had several times chartered from the defendant Narciso Lauron, a banca named Maria belonging to the latter, of which Glicerio Ipil was master and Justo Solamo, supercargo, for the transportation of certain merchandise and some money to and from the said town and the port of Cebu, that, on or about the 17th of October, 1911, the plaintiff chartered the said bancafrom the defendant Lauron for the transportation of various merchandise from the port of Cebu to Catmon, at the price of P45 for the round trip, which merchandise was loaded on board the said craft which was then at anchor in front of one of the graded fills of the wharf of said port; that in the afternoon of the following day, he delivered to the other two defendants, Ipil, and Solamo, master and supercargo, respectively, of the aforenamed banca, the sum of P450, which was in a trunk belonging to the plaintiff and was taken charge of by said two defendants, who received this money from the plaintiff, for the purpose of its delivery to the latter's shop in Catmon for the purchase of corn in this town; that while the money was still in

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said trunk aboard the vessel, on the night of the said 18th of October, the time scheduled for the departure of the Maria from the port of Cebu, said master and said supercargo transferred the P450 from the plaintiff's trunk, where it was, to theirs, which was in a stateroom of the banca, from which stateroom both the trunk and the money disappeared during that same night, and that the investigations, made to ascertain their whereabouts, produced no result.

The facts are also admitted by the aforementioned master and supercargo, two of the defendants, that they received from the plaintiff said P450, which sum was in the latter's own trunk which was placed outside the stateroom of the banca, for the reason, as they said, that there was no room for it inside the stateroom; that these defendants therefore transferred said money to their trunk, which was inside the stateroom, and that this trunk and the P450 therein contained disappeared from the boat during the night of that same day; that said sum had not been found or returned to the plaintiff; that the plaintiff, being on the banca in the afternoon of that day, when his trunk containing the P450 was carried aboard, and seeing that said two defendants, who had the key of the trunk, had removed said sum to their trunk inside the stateroom, charged them to take special care of the money; that the master Ipil assured the plaintiff that there was no danger of the money being lost; and that, finally, during the night in question, both the master and the supercargo and four cabin-boys were aboard thebanca.

It was likewise proven by the affidavits made by the master Ipil, the supercargo Solamo, and the cabin-boys of said vessel, Juan Quiamco and Gabriel Basang, before the provincial fiscal of Cebu on the day following the commission of the theft, which affidavits were presented at the trial as Exhibits A, 3, 4, and 5, and by the testimony given at the trial by the defendants Ipil and Solamo, that both said cabin-boys and the other two, Simeon Solamo, and Eulalio Quiamco, knew of the existence of the money in the trunk inside the stateroom and witnessed its removal to said trunk from the plaintiff's; that the last two cabin-boys above-named, in company with the master and the supercargo, conveyed the plaintiff's trunk, in which the money was previously contained, from the plaintiff's shop to the banca; and that no person not belonging to the vessel knew that the money was in the trunk inside said stateroom.

According to the testimony of the master Ipil himself he slept outside the stateroom that night, but a cabin-boy named Gabriel slept inside. The latter, however, was not presented by the defendants to be examined in regard to this point, nor does it appear that he testified in respect thereto in his affidavit, Exhibit 5, before referred to, presented by the defendants' own counsel. The master Ipil and the supercargo Solamo also testified that they left the cabin-boy Simeon Solamo on guard that night; but this affirmation was not corroborated by Solamo at the trial, for he was not introduced as a witness, and only his affidavit Exhibit 2, taken before the fiscal of Cebu on the day following the commission of the crime, was presented by the defendants. This affidavit, which should have been admitted and not rejected, as was done by the court and excepted to by the defendants, shows that Simeon Solamo stated that he was not designated to do guard duty that night, but that on the morning of the said 19th of October, that is, the next day, all agreed that affiant should say that he was on guard, though it was not true that he was.

Finally, said two defendants, the master and the supercargo, gave no satisfactory explanation in regard to the disappearance of the trunk and the money therein contained, from the stateroom in which the trunk was, nor as to who stole or might have stolen it. The master of the banca merely testified that they, he and the supercargo, did not know who the robbers were, for, when the robbery was committed, they were sound asleep, as they were tired, and that he believed that the guard Simeon also fell asleep because he, too, was tired. The second defendant gave the same testimony. Both of them testified that the small window of the stateroom had been broken, and the first of them, i. e., the master, stated that all the

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window-blinds had been removed from the windows, as well as part of the partition in which they were and that the trunk in which the money was contained could have been passed through said small window, because, as this witness himself had verified, the Chinaman's trunk, which differed but a little from the one stolen, could be passed through the same opening. The chief pilot of the harbor of Cebu, Placido Sepeda, who officially visited the said banca, also stated that the small wooden window of the stateroom was broken, and that he believed that in breaking it much noise must have been produced. However, no evidence whatever was offered by counsel for the defendants to prove that it might have been possible to remove the trunk from the stateroom through the opening made by the breaking of the small window, neither was the size of the trunk proven, in relation to the Chinaman's to which the defendant master referred in his testimony, so that it might be verified whether the statement made by the latter was true, viz., that it might have been possible to remove from the stateroom through said opening the trunk in which the P450 were contained, which sum, the same as the trunk, its container, had not been found, in spite of the investigation made for the purpose. Furthermore, it was not proven, nor is there any circumstantial evidence to show, that the robbery in question was committed by persons not belonging to the craft.

It is therefore beyond all doubt that the loss or disappearance, on the night aforementioned, of the P450, the property of the plaintiff, which, were in the possession of the defendants, the master and the supercargo of the banca Maria, occurred through the manifest fault and negligence of said defendants, for, not only did they fail to take the necessary precautions in order that the stateroom containing the trunk in which they kept the money should be properly guarded by members of the crew and put in such condition that it would be impossible to steal the trunk from it or that persons not belonging to the vessel might force an entrance into the stateroom from the outside, but also they did not expressly station some person inside the stateroom for the guarding and safe-keeping of the trunk, for it was not proven that the cabin-boy Gabriel slept there, as the master of the vessel, Ipil, stated, nor that the other cabin-boy, Simeon Solamo, was on guard that night, for the latter contradicted the statements made by the two defendants on this point. On the contrary, it was proven by the master's own statement that all the people on the vessel, including himself and the supercargo Solamo, slept soundly that night; which fact cannot, in any manner, serve them as an excuse, nor can it be accepted as an explanation of the statement that they were not aware of what was then occurring on board. if the trunk was actually stolen by outsiders and removed through the small window of the stateroom, a detail which also was not proven, but, on the contrary, increases their liability, because it is very strange that none of them who were six and were around or near the stateroom, should have heard the noise which the robbers must have made in breaking its window. All of these circumstances, together with that of its having been impossible to know who took the trunk and the money and the failure to recover the one or the other, make the conduct of the two defendants and of the other members of the crew of the banca, eminently suspicious and prevent our holding that the disappearance or loss of the money was due to a fortuitous event, to force majeure, or that it was an occurrence which could not have been foreseen, or which, if foreseen, was inevitable.

It is unquestionable that the defendants Glicerio Ipil and Justo Solamo were the carriers of the said P450 belonging to the plaintiff, and that they received this sum from the latter for the purpose of delivering it to the store of the town of Catmon, to which it had been consigned. Under such circumstances, said defendants were the depositories of the money.

Manresa, in his Commentaries on the Civil Code (Vol. 10 p. 773), in treating of the provisions of the said code concerning transportation by sea and by land of both persons and things, says:

''Liability of carriers. — In order that a thing may be transported, it must be delivered to the carrier, as the Code says. From the time it is delivered to the carrier or shipper until it is received by the consignee, the carrier has it in his possession, as a necessary condition for its transportation, and is obliged to preserve and guard it; wherefore it is but natural and logical that he should be responsible for it.

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"The Code discovers in the relation of all these elements the factors which go to make up the conception of a trust. and, taking into account that the delivery of the thing on the part of the shipper is unavoidable, if the transportation is to take place, esteems that, at least in certain respects, such trusts are necessary."

The said two defendants being the depositaries of the sum in question, and they having failed to exercise for its safe-keeping the diligence required by the nature of the obligation assumed by them and by the circumstances of the time and the place, it is evident that, in pursuance of the provisions of articles 1601 and 1602, in their relation to articles 1783 and 1784, and as prescribed in article 1770, of the Civil Code, they are liable for its loss or misplacement and must restore it to the plaintiff, together with the corresponding interest thereon as an indemnity for the losses and damages caused him through the loss of the said sum.

With respect to the other defendant, Narciso Lauron, as he was the owner of the vessel in which the loss or misplacement of the P450 occurred, of which vessel, as aforestated, Glicerio Ipil was master and Justo Solamo, supercargo, both of whom were appointed to, or chosen for, the positions they held, by the defendant himself, and, as the aforementioned sum was delivered to the said master, Ipil, and the merchandise to be transported by means of said vessel from the port of Cebu to the town of Catmon was laden by virtue of a contract executed by and between the plaintiff and the owner of the vessel, Narciso Lauron, it behooves us to examine whether the latter, also, should be held to be liable, as requested by the plaintiff in his complaint.

Said vessel was engaged in the transportation of merchandise by sea and made voyages to and from the port of Cebu to Catmon, and had been equipped and victualed for this purpose by its owner, Narciso Lauron, with whom, as aforesaid, the plaintiff contracted for the transportation of the merchandise which was to be carried, on the date hereinabove mentioned, from the port of Cebu to the town of Catmon.

For legal purposes, that is, for the determination of the nature and effect of the relations created between that plaintiff, as owner of the merchandise laden on said craft and of the money that was delivered to the master, Ipil, and the defendant Lauron, as owner of the craft, the latter was a vessel, according to the meaning and construction given to the word vessel in the Mercantile Code, in treating of maritime commerce, under Title 1, Book 3.

"The word vessel serves to designate every kind of craft by whatever particular or technical name it may now be known or which nautical advancements may give it in the future." (Commentaries on the Code of Commerce, in the General Review of Legislation and Jurisprudence, founded by D. Jose Reus y Garcia, Vol. 2, p. 136.)

According to the Dictionary of Legislation and Jurisprudence by Escriche, a vessel is any kind of craft, considering solely the hull.

Blanco, the commentator on mercantile law, in referring to the grammatical meaning of the words "ship" and "vessels," says, in his work aforecited, that these terms designate every kind of craft, large or small, whether belonging to the merchant marine or to the navy. And referring to their juridical meaning, he adds: "This does not differ essentially from the grammatical meaning; the words 'ship' and 'vessel' also designate every craft, large or small, so long as it be not an accessory of another, such as the small boat of a vessel, of greater or less tonnage. This definition comprises both the craft intended for ocean or for coastwise navigation, as well as the floating docks, mud lighters, dredges, dumpscows or any other floating apparatus used in the service of an industry or in that of maritime commerce. . . ." (Vol. 1, p. 389.)

According to the foregoing definitions, then, we hold that the banca called Maria, chartered by the plaintiff Yu Con from the defendant Narciso Lauron, was a "vessel", pursuant

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to the meaning this word has in mercantile law, that is, in accordance with the provisions of the Code of Commerce in force.

Glicerio Ipil, the master of the said banca, Maria, must also be considered as its captain, in the legal acceptation of this word.

The same Code of Commerce in force in these Islands compares, in its article 609, masters with captains. It is co be noted that in the Code of Commerce of Spain the denomination of arraeces is not included in said article as equivalent to that of masters, as it is in the Code of these Islands.

Commenting on said article, the aforementioned General Review of Legislation and Jurisprudence says:

"The name of captain or master is given, according to the kind of vessel, to the person in charge of it.

"The first denomination is applied to those who govern vessels that navigate the high seas or ships of large dimensions and importance, although they be engaged in the coastwise trade.

"Masters are those who command smaller ships engaged exclusively in the coastwise trade.

"For the purposes of maritime commerce, the words 'captain' and 'master' have the same meaning; both being the chiefs or commanders of ships." (Vol. 2, p. 168.)

Article 587 of the Code of Commerce in force provides:

"The agent shall be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried; but he may exempt himself herefrom by abandoning the vessel with all her equipments and the freight he may have earned during the trip."

Article 618 of the same Code also prescribes:

"The captain shall be civilly liable to the agent and the latter to the third persons who may have made contracts with the former —

"1.For all the damages suffered by the vessel and its cargo by reason of want of skill or negligence on his part, If a misdemeanor or crime has been committed he shall be liable in accordance with the Penal Code.

"2.For all the thefts committed by the crew, reserving his right of action against the guilty parties."

The Code of Commerce previous to the one now in force, to wit, that of 1829, in its article 624, provided that the agent or shipowner should not be liable for any excesses which, during the navigation, might be committed by the captain and crew, and that, for the reason of such excesses it was only proper to bring action against the persons and property of those found guilty.

Estasen, in his work on the Institutes of Mercantile Law (Vol. 4, p. 280), makes the following remarks, in referring to the exposition of reasons presented by the Code Commission which prepared and presented for approval the Code of Commerce now in force, in which exposition of reasons were set forth the fundamental differences between the provisions contained in both codes, with respect to the subject-matter now under discussion.. He says:

"Another very important innovation introduced by the Code is that relative to the liability for misdemeanors and crimes committed by the captain or by members of the crew This is a matter of the greatest importance on which a variety of opinions has been expressed by different juris-consults.

"The old code declares the captain civilly liable for all damage sustained by the vessel or its cargo through lack of skill or care on his part, through violations of the law, or through unlawful acts committed by the crew. As regards the agent or shipowner, it

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declares in unmistakable terms that he shall in no wise be liable for any excesses which, during the navigation, may be committed by the captain and the crew.

"Upon an examination, in the light of the principles of modern law, of the standing legal doctrine on the nonliability of the shipowner for the unlawful acts, that is, the crimes or quasi crimes, committed by the captain and the crew, it is observed that it cannot by maintained in the absolute and categorical terms in which it is formulated.

"It is well and good that the shipowner be not held criminally liable for such crimes or quasi crimes; but he cannot be excused from liability for the damage and harm which, in consequence of those acts, may be suffered by the third parties who contracted with the captain, in his double capacity of agent and subordinate of the shipowner himself. In maritime commerce, the shippers and passengers in making contracts with the captain do so through the confidence they have in the shipowner who appointed him; they presume that the owner made a most careful investigation before appointing him, and, above all, they themselves are unable to make such an investigation, and even though they should do so, they could not obtain complete security, inasmuch as the shipowner can, whenever he sees fit, appoint another captain instead.

"The shipowner is in the same case with respect to the members of the crew, for, though he does not appoint directly, yet, expressly or tacitly, he contributes to their appointment.

"On the other hand, if the shipowner derives profits from the results of the choice of the captain and the crew, when the choice turns out successful, it is also just that he should suffer the consequences of an unsuccessful appointment, by application of the rule of natural law contained in the Partidas, viz., that he who enjoys the benefits derived from a thing must likewise suffer the losses that ensue therefrom.

"Moreover, the Penal Code contains a general principle that resolves the question under consideration, for it declares that such persons as undertake and carry on any industry shall be civilly liable, in default of those who may be criminally liable, for the misdemeanors and crimes committed by their subordinates in the discharge of their duties.

"The Code of Commerce in force omits the declaration of non-liability contained in the old code, and clearly makes the shipowner liable civilly for the loss suffered by those who contracted with the captain, in consequence of the misdemeanors and crimes committed by the latter or by the members of the crew."

It is therefore evident that, in accordance with the provisions of the Code of Commerce in force, which are applicable to the instant case, the defendant Narciso Lauron, as the proprietor and owner of the craft of which Glicerio Ipil was the master and in which, through the fault and negligence of the latter and of the supercargo Justo Solamo, there occurred the loss, theft, or robbery of the P450 that belonged to the plaintiff and were delivered to said master and supercargo, a theft which, on the other hand, as shown by the evidence, does not appear to have been committed by a person not belonging to the craft, should, for said loss or theft, be held civilly liable to the plaintiff, who executed with said defendant Lauron the contract for the transportation of the merchandise and money aforementioned between the port of Cebu and the town of Catmon, by means of the said craft.

Therefore, the trial court did not err in so holding in the judgment appealed from.

The plaintiff having filed his answer to the cross-complaint as soon as the defendant presented their motion for a declaration of the plaintiff's default in connection with said cross-complaint, and it being optional with the court to make in such cases the declaration of default, as provided in section 129 of the Code of Civil Procedure, the said court did not incur the second error assigned by the appellants in their brief.

Lastly, as the banca Maria did not make the trip she should have made from the port of Cebu to the town of Catmon, on the occasion in question, through causes chargeable, as has been seen, to the captain and the supercargo of said banca, to wit, because of the loss, theft or robbery of the P450 belonging to the plaintiff, and as a contract was made for the

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transportation of the said sum and the merchandise from one of said points to the other, for the round trip, and not through payment by the plaintiff of the wages due the crew for each day, as alleged by the defendants, for the proofs presented by the latter in regard to this point were insufficient, as the trial court so held, neither did the latter incur error in overruling the cross-complaint formulated by the defendants in their answer against the plaintiff.

Therefore, and for all the reasons above set forth, we affirm the judgment appealed from, with the costs of this instance against the appellants. So ordered.

Torres, Carson, Moreland and Trent, JJ., concur.

[G.R. No. 19540. January 29, 1923.]

WING KEE COMPRADORING COMPANY, plaintiff-appellant, vs. THE BARK "MONONGAHELA," VICTOR S. FOX & CO., INC., owner of the bark Monongahela, THE ADMIRAL LINE, and C.G. LOTHIGIUS, defendants-appellees.

Luciano de la Rosa for appellant.

Schwarzkopf & Ohnich for appellees.

SYLLABUS

1.SHIP AND SHIPPING; ARTICLE 586, CODE OF COMMERCE; SUPPLIES FOR BARK "MONONGAHELA." — By article 586 of the Code of Commerce, "the owner of a vessel and agent be civilly liable for the acts of the captain and for the obligations contracted by the latter to repair, equip, and provision the vessel, provided the creditor proves that the amount claimed was invested therein."

2.ID.; ID.; ID. — When the agents buy in their own names, but really for the account of their principal, the seller has an option to look to either for payment, unless (1) he trusted the agent exclusively; or (2) by the usage and understanding of the business the agent only is held; or (3) unless the special circumstances of the case show that only the agent was intended to be bound and the seller knew it or was chargeable with knowledge of it.

3.ID.; ID. — Held: That the Admiral Line, as agent for the bark Monongahela, is liable to the plaintiff for supplies furnished the Monongahela between March 16, 1921 and August 2, 1921, but is not responsible for supplies furnished after that date.

D E C I S I O N

MALCOLM, J p:

The plaintiff in this case, Wing Kee Corporation Company, seeks to recover from the defendants principally the Admiral Line, as agent for the Bark Monongahela, the sum of P17,675.64, with interest and costs, on account of goods wares,, and merchandise sold and delivered by the plaintiff to the defendants for the use of the crew of the Bark Monongahela. The case, as submitted to the appellate court, must be reconstructed as best it may, from

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pleadings not altogether clear and explicit, from facts taken in part from the decision of the trial court, and in part from the exhibits, the stenographic notes not having been written up, and from the briefs on the questions of law which are involved.

Turning first to the pleadings, we find the plaintiff in its amended complaint praying for judgment against the defendants jointly and severally for the sum of P17,675.64, meaning, thereby, we presume, that it had a just and preferred claim upon and against the Bark Monongahela, and that the debt was due from the Admiral Line, the agent: C. G. Lothigius, the captain of the boat; and the owners of the boat, either Victor S. Fox & Co., Inc., or the United States Shipping Board Emergency Fleet Corporation. Captain Lothingius and the Admiral Line answered. The owners were not cited to appear. No action against the bark was taken. Following the trial, judgment was rendered dismissing the complaint, without special finding as to costs.

Turning next to the facts, the exhibits of record show that beginning with March 16 1921, and ending with August 16,1921, various supplies were furnished the Bark Monongahela by Wing Kee Compradoring Company. Most of the bills for these goods are made out against the "Admiral Line, S. S. Monongahela." All are countersigned by the master and the first steward. It appears, therefore, that the plaintiff was looking to the Admiral Line for payment.

The first requisitions for supplies are on forms headed The Admiral Line." Then follows Manila, the date, and the name, "Wing Kee Compradoring Co." Next is the order, reading: "Please deliver to S. S. Monongahela now lying at Bay, the following goods and send bills to the Admiral Line:". After this the goods are named. At the foot is found, "United States Shipping Board Emergency Fleet Corporation," although these words are erased in a few of the requisitions, "The Admiral Line (Pacific Steamship Co.) Operating Agents. By J. J. Armstrong." On the side of the requisitions in red ink the following: "Note: This requisition must be receipted by ether Chief Officer, Chief Steward or Chief Engineer and returned to the Admiral Line, with six copies of invoice immediately after deliver of goods." After May 4, 1921, the requisitions seem to have been made our by the steward and the master. We deduce from these documents that the Admiral Line was the operating agent for the Monongahela, and was responsible as such until the agency was terminated.

In the Manila Daily Bulletin for August 2, 1921, appeared the following: "Notice — Bark Monongahela — The under-signed hereby give notice that they are not responsible in any manner whatsoever for any indebtedness incurred by the Bark Monongahela, its Master and/or Crew — The Admiral Line." The trial judge found as a fact that on or before August 4, 1921, the Admiral Line had ceased to act as agent for the Monongahela. Nevertheless, supplies were furnished theMonongahela after these dates by the plaintiff.

Turning finally to the law, we find section 1 of Title 2 of our Code of Commerce, given up to the subject, "Owners of Vessels and Their Agents." The first article in this section (art 586) and the provision of law which in our judgment is controlling, reads:

"The owner of a vessel and the agent shall civilly liable for the acts of the captain and for the obligations contracted by the latter to repair, equip, andprovision the vessel, provided the creditor proves that the amount claimed was invested therein.

"By agent is understood the person intrusted with the provisioning of a vessel, or who represents her in the port in which she happens to be."

The civil law, in this respect, is not all dissimilar to the common law. By the general law of the United States as well as the England and Europe, it has been held that when the agents buy in their own names, but really for the account of their principal, the seller has an option to look to either for payment, unless (1) he trusted the agent exclusively; or (2) by the usage and understanding of the business the agent only is held; or (3) unless the special circumstances of the case show that only the agent was intended to be bound and the seller knew it or was chargeable with knowledge of it. Although the English rule that, where the

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agent buys in his own name for the account of a foreign principal, the agent only is bound appears not to have been followed in the United States, yet the general doctrine is the same, that the seller has an option to resort to either. (Berwind vs. Schultz [1885], 25 Fed., 912.)

Applying more directly the law to the pleadings and the facts, it is first to be noted that the plaintiff has not followed out its allegation that it has a claim against the Bark Monongahela, and might not have prospered any way, considering the rather dubious doctrine announced in the case of Heath vs. Steamer San Nicolas ([1907], 7 Phil., 532). Not only this, but the plaintiff has made no effort to bring the owner of the bark into the case and has pushed with no enthusiasm its case against the captain of the boat. What apparently the plaintiff wants for the Admiral Line, as the agent for the Bark Monongahela, to pay the claim, leaving the latter to reimburse itself, if it sees fit, from the owners.

To all this appellee answers that as the agency has ceased, action cannot be brought against Admiral Line. To our minds this is a rather far-fetched argument, for pursued to its logical conclusion, every agent for a vessel could thus avoid responsibility pursuant to article 586 of the Code of Commerce, by giving up its agency when threatened with suit to enforce the obligations of third parties. Moreover, the bills were presented when the Admiral Line was yet the agent.

In resume, therefore, we are of opinion and so hold that the Admiral Line, as agent for the Bark Monongahela, is liable to the plaintiff for supplies furnished the Monongahela between March 16, 1921 and August 2, 1921, but is not responsible for supplies furnished after that date. The mathematical additions show that the debt of the Admiral Line to the plaintiff amounts to P16,526.29.

In accordance with the foregoing, judgment is reversed and the plaintiff shall have and recover from the defendant, the Admiral Line, the sum of P16,526.29, without interest and cost. So ordered.

Araullo, C.J., Street, Avanceña, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.

[G.R. No. 32640. December 29, 1930.]

WALTER A. SMITH & CO., INC., plaintiff-appellant, vs. CADWALLADER GIBSON LUMBER COMPANY, defendant-appellee.

Jose Erquiaga for appellant.

DeWitt, Perkins & Brady for appellee.

SYLLABUS

1.DAMAGES; RESPONSIBILITY FOR DAMAGES CAUSED TO A WHARF BY A STEAMSHIP. — By virtue of the facts stated in the decision and the doctrines therein cited, It is held: That, inasmuch as the defendant company, owner of the steamer Helen C, which caused the damages, giving rise to the controversy at the wharf of the plaintiff, had employed a duly licensed captain, authorized to navigate and direct a vessel of any tonnage, and inasmuch as the appellee contracted his services because of his reputation as a captain, the presumption of liability against the defendant has been overcome by the exercise of the care and diligence of a good father of a family in selecting said captain.

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D E C I S I O N

VILLAMOR, J p:

On August 30, 1926, the steamer Helen C, belonging to the defendant, the Cadwallader Gibson Lumber Co., under the command of Captain Miguel Lasa, in the course of its maneuvers to moor at the plaintiff's wharf in the port of Olutanga, Zamboanga, struck said wharf, partially demolishing it and throwing the timber piled thereon into the water. Whereupon the plaintiff brought the instant action to recover of the defendant the sum of P9,705.83 as damages for the partial demolition of the wharf and for the loss of the timber piled thereon.

The defendant denied the plaintiff's causes of action, and in defense alleged that the demolition of the wharf was due to the excessive weight of thousands of board feet of timber piled upon it by the plaintiff to be loaded and shipped on the steamer Helen C and to the bad condition of the piles supporting said wharf.

In view of the evidence adduced by both parties, the trial court held that the defendant was not liable for the partial collapse of the plaintiff's wharf, and for the loss of the timber piled thereon, dismissing the complaint with costs against the plaintiff.

The judge who took cognizance of this cause held:

"The evidence shows that said wharf was built in 1921 and repaired in 1925. The repairs, according to the deposition of Wilson C. Smith, a witness for the plaintiff, consisted in replacing 6 bents of piles leaving more than 9 old bents of piles without being replaced. Therefore, the wharf of the plaintiff was old. The court is inclined to believe that the steamer Helen C slightly struck the dock but not with force, for it was difficult for her to strike it with force, as hereinbefore stated, and due to the bad condition of the dock the slight impact was sufficient to destroy it. The bent of the piles toward the east side of the dock, as may be seen from the pictures Exhibits E and F, after its destruction, does not necessarily mean that the destruction of the wharf was caused by a strong impact, as the weight of the 60,000 board feet of lumber piled thereon, after such slight impact by the steamer against the dock, might have caused said piles to lean toward that side."

We are of opinion that this finding is supported by the evidence. In this connection, it is to be noted that the witness, Dionisio Pascua (for the plaintiff) testified that the 60,000 board feet occupied one-fourth of the wharf. In other words, by the testimony of the plaintiff's witnesses it has been proved that the plaintiff company piled up on the wharf a quantity of timber which exceeded its capacity of resistance, because if the whole wharf had a capacity of 100,000 board feet of timber, one-fourth of it could sustain one- fourth of that amount, or, about 25,000 board feet of timber. But it appears that the plaintiff company loaded 60,000 board feet, weighing over 100 tons, within a space capable of supporting only 25,000 board feet. This must have helped to bring about the collapse of the wharf on the eastern side and the consequent sliding down of the timber piled up on the one side.

The court below did not make any definite finding as to the negligence of the captain, but the plaintiff apparently infers that there was negligence on his part, considering the testimony of its witness Venancio Ignacio to the effect that the impact of the ship with the wharf was due to the excessive force with which the captain ordered the winches to work. This was denied by the captain, testifying for the defendant. If, to this denial, we add the facts found by the trial court that said captain dropped two anchors from the prow and the kedge-anchor from the poop, and besides, fastened two lines of cables to the piles ordinarily used by vessels in docking at that wharf, as preliminary to drawing the vessel alongside the wharf, it will be seen that said winches must have been carefully operated, and if any force was employed in working them, it was doubtless due to the fact that the vessel had already dropped anchor and could not move rapidly and the drawing of the vessel up to the wharf

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was against the stream which flowed from east to west. We do not believe that the mere statement of the witness Ignacio who has not been shown to possess technical knowledge of the maneuvers for docking vessels, is sufficient to justify a holding that the fore employed by the winches on that occasion was excessive under the circumstances of the case, especially so if the captain's testimony is to be considered, that the winches were carefully operated.

The witnesses for the plaintiff state that the steamer Helen C struck the wharf twice, but the trial court, after examining the evidence, found said testimony to be exaggerated.

As has been stated, the plaintiff seeks to recover against the owner of the steamer Helen C, with whom it had no contractual relations basing its action on the acts of Captain Lasa who was in command of the vessel when docking at the plaintiff's wharf in Olutanga, Zamboanga. In support of its contention, the plaintiff cites the doctrine laid down in the case of Ohta Development Co. vs. Steamship Pompey (49 Phil., 117), wherein it was held that the defendant company, as ship-owner, was liable for the indemnities arising from the lack of skill or from negligence of the captain.

In the case cited, the steamship Pompey, under the command of Captain Alfredo Galvez, was carrying cargo consisting principally of flour and rice for the plaintiff. The ship docked with her bow facing the land and fastened her cables to the posts on the pier. The evidence shows that heretofore other ships docking alongside said pier had the bow facing the land and fastened a cable to a tree situated farther west on the beach, a precaution taken to avoid the ship getting too close to the pier. When the Pompey docked, at the time in question, she did not fasten the cable to the tree on the shore, nor drop her kedge-anchors from the prow. After being docked, they proceeded to unload the flour and rice which were first deposited on the pier and later transported to the plaintiff's warehouse on land, where it was officially receipted for. The work of discharging and hauling the cargo to the plaintiff's warehouse was accomplished without any intervention on the part of the plaintiff and exclusively by laborers and the crew of the ship. The unloading of the cargo on to the pier was hastily done and there being but fifteen or twenty laborers engaged in hauling it to the plaintiff's warehouse, a large amount of cargo accumulated on the dock. At 11.10 that morning, the pier sank with all the merchandise.

As may be noted, the facts in that case were different from those in the case in question. In the former a contract of marine transportation existed between the plaintiff and the defendant, whereas in the latter no previous contractual relation existed between the parties. For this reason, the case of Ohta Development Co. was decided upon articles 587 and 618 of the Code of Commerce. But the instant case, dealing, as it does, with an obligation arising from culpa aquiliana or negligence, must be decided in accordance with articles 1902 and 1903 of the Civil Code.

Article 1902 of the Civil Code prescribes:

"Any person who by an act or omission causes damage to another by his fault or negligence shall be liable for the damage so done."

An article 1903 of the said Code states:

"The obligation imposed by the next preceding article is enforcible, not only for personal acts and omissions, but also for those of persons for whom another is responsible.

"The father, or in case of his death, or incapacity, the mother, is liable for any damages caused by the minor children who live with them.

"Guardians are liable for damages done by minors or incapacitated persons subject to their authority and living with them.

"Owners or directors of any establishment or business are, in the same way, liable for any damages caused by their employees while engaged in the branch of the service in which employed, or on occasion of the performance of their duties.

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"The State is subject to the same liability when it acts through a special agent, but not if the damage shall have been caused by the official upon whom properly devolved the duty of doing the act performed, in which case the provisions of the next preceding article shall be applicable.

"Finally, teachers or directors of arts and trades are liable for any damages caused by their pupils or apprentices while they are under their custody.

"The liability imposed by this article shall cease in case the persons subject thereto prove that they exercised all the diligence of a good father of a family to prevent the damage."

In the case of Maryland Casualty Co. vs. Matson Nav. Co. (177 Cal., 610, 612), in an action similar to the present, the court held:

". . . the plaintiff could only recover, if at all, upon a sufficient showing of negligence on the part of the defendants in the handling of their ship, as a result of which the injury complained of arose; and if the finding of the trial court, to the effect that there was no negligence in respect to the matter complained of on the part of the defendants, is sustained by sufficient evidence, there is an end to the plaintiff's case."

The same doctrine was upheld by the Supreme Court of Spain in its judgment of June 23, 1900, in deciding a case similar to the one at bar, where the plaintiff was a third person without any contractual relation with the defendant before the acts were committed which gave rise to the complaint. In that judgment, the court said:

". . . the action for damages caused by an act or omission arising from fault or negligence, requires an allegation of one or the other of said causes, which is the basis of said action, according to articles 1089, 1093, 1902, and 1903 of the Civil Code; and such proof must be made by the plaintiff in accordance with the general principle of evidence regarding obligations as laid down in article 1214; and it not sufficient merely to suggest — what at any rate cannot be admitted — that from the mere existence of damage, liability must be presumed and that the defendant must rebut such a presumption."

And Manresa, commenting on article 1902 of the Civil Code, among other things, says the following:

"Among the questions most frequently raised and upon which the majority of cases have been decided with respect to the application of this liability, are those referring to the determination of the damage or prejudice, and to the fault or negligence of the person responsible therefor.

"These are the two indispensable factors in the obligations under discussion, for without damage or prejudice there can be no liability, and although this element is present to indemnity can be awarded unless arising from some person's fault or negligence.

"With respect to the determination of damages, it must be definite and the injury must not be occasioned by the performance of an obligation or by acts or omissions of the injured party himself; and for the proof of the fault or negligence, mere suggestions or inadmissible presumptions will not suffice, but such evidence must be adduced as to exclude all doubt regarding their existence and relation to the injury, for, in order to give rise to an obligation, there must be between the fault or negligence and the evil resulting therefrom, a casual relation." (12 Manresa, 601, 602.)

In Cangco vs. Manila Railroad Co. (38 Phil., 768), this court held that article 1903 of the Civil Code is not applicable to obligations arising from contracts, but only to obligations arising without any agreement; or, to employ technical language, that article refers only to culpa aquiliana and not to culpa contractual.

Manresa (Vol. VIII, page 67) in his commentaries on articles 1103 and 1104 of the Civil Code clearly sets forth this distinction, which was also recognized by this court in the case of Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil., 359). In commenting upon article 1093 (Vol. VIII, page 30) Manresa points out the difference between "culpa

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substantive and independent, which, by itself, gives rise to an obligation between persons not formerly bound by any other obligation" and culpa considered as an "incident in the performance of an obligation which already existed . . .."

In the Rakes case (supra), this court based its decision expressly on the principle that article 1903 of the Civil Code is not applicable to a culpa not arising from a contract. On this point the court said:

"The acts to which these articles (1902 and 1903 of the Civil Code) are applicable are understood to be those not growing out of preexisting duties of the parties to one another. But where relations already formed give rise to duties, whether springing from contract or quasi contract, then breaches of those duties are subject to articles 1101, 1103, and 1104 of the same Code." (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil., 359, 365.)

It is not true that proof of due diligence and care in the selection of and instructions to a servant relieves the master of liability for the former's acts; on the contrary, such proof shows that that liability never existed. As Manresa (Vol. VIII, page 68) says, the liability arising from an extra-contractual wrong is always based upon a voluntary act or omission, which, while free from any wrongful intent, and due to mere negligence or carelessness, causes damage to another. A master who takes all possible precaution in selecting his servants or employees, bearing in mind the qualifications necessary for the performance of the duties to be entrusted to them, and instructs them with equal care, complies with his duty to all third parties to whom he is not bound under contract, and incurs no liability if, by reason of the negligence of such servants though it be during the performance of their duties as such, third parties should suffer damages. It is true that under article 1903 of the Civil Code, the law presumes that the master, if regarded as an establishment, has been negligent in the selection of, or instruction to, its servants, but that is a mere juris tantum presumption and is destroyed by the evidence of due care and diligence in this respect.

The Supreme Court of Porto Rico, construing identical provisions in the Civil Code of Porto Rico, held that these articles are applicable only to cases of extra-contractual wrong. (Carmona vs. Cuesta, 20 Porto Rico Reports, 215.)

This distinction was clearly stated by this court in Bahia vs. Litonjua and Leynes (30 Phil., 624), wherein the action was based on the defendant's extra-contractual liability for damages occasioned by the carelessness of an employee of his, in the performance of his duty as such. This court, after citing the last paragraph of article 1903 of the Civil Code, held:

"From this article two things are apparent: (1) That when an injury is caused by the negligence of a servant or employee there instantly arises a presumption of law that there was negligence on the part of the master or employer either in the selection of the servant or employee, or in supervision over him after the selection, or both; and (2) that presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It follows necessarily that if the employer shows to the satisfaction of the court that in selection and supervision he has exercised the care and diligence of a good father of a family, the presumption is overcome and he is relieved from liability.

"This theory bases the responsibility of the master ultimately on his own negligence and not on that of his servant. This is the notable peculiarity of the Spanish law of negligence. It is, of course, in striking contrast to the American doctrine that, in relations with strangers, the negligence of the servant is conclusively the negligence of the master."

The opinion of this court is thus expressed, to the effect that in case of extra-contractual wrong, some fault personally imputable to the defendant must exist, and that the last paragraph of article 1903 only establishes a rebuttable presumption and is on all fours with Manresa's authoritative opinion (Vol. XII, page 611), that the liability created by article 1903 is enforced by reason of non-performance of duties inherent in the special relations of authority or superiority existing between the person liable for the damage done and the person who by his act or omission has caused it.

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The defendant contends in its answer that the captain and all the officers of the steamer Helen C were duly licensed and authorized to hold their respective positions at the time when the wharf in question collapsed, and that said captain, officers, and all the members of the crew of the steamer had been chosen for their reputed skill in directing and navigating the steamer Helen C, safely, carefully, and efficiently. The evidence shows that Captain Lasa at the time the plaintiff's wharf collapsed was a duly licensed captain, authorized to navigate and direct a vessel of any tonnage, and that the appellee contracted his services because of his reputation as a captain, according to F. C. Cadwallader. This being so, we are of opinion that the presumption of liability against the defendant has been overcome by the exercise of the care and diligence of a good father of a family in selecting Captain Lasa, in accordance with the doctrines laid down by this court in the cases cited above, and the defendant is therefore absolved from all liability.

By virtue of the foregoing, the judgment appealed from must be, as it is hereby, affirmed, with costs against the appellant. So ordered.

Johnson, Street, Malcolm, Ostrand, Johns, Romualdez and Villa- Real, JJ., concur.

[G.R. No. 17690. June 14, 1922.]

YU BIAO SONTUA & CO., plaintiff-appellee, vs. MIGUEL J. OSSORIO, defendant-appellant.

Antonio Sanz and Kincaid, Perkins & Kincaid for appellant.

M.H. de Joya for appellee.

SYLLABUS

1.MASTER AND SERVANT; SHIPOWNER'S OR SHIP AGENT'S LIABILITY FOR ACTS OF HIS EMPLOYEES. — It having been proven that the explosion and fire which took place in a ship are, with good ground, imputable to the negligence of the persons who were then in charge thereof and under whose direction the loading of cases of petroleum and gasoline had been affected, and that the said persons are agents of the shipowner or ship agent, the latter is liable for the negligent acts committed by them, under articles 587, 613, and 618 of the Code of Commerce, and 1902, 1903, and 1908 of the Civil Code.

2.INHERENT DUTIES OF THE MASTER OF A SHIP; LIABILITY OF THE SHIP AGENT TOWARDS THIRD PERSONS. — Although the duties enumerated in article 612 of the Code of Commerce are inherent in the master, the civil liability arising from the nonfulfillment thereof is not limited to the latter, since while the master is responsible to the ship agent, he is, in turn, liable to third persons, as is clearly provided in article 618 of the said Code, which in its subsections 5 and 7 expressly mentions such duties enumerated in the aforesaid article 612.

D E C I S I O N

ROMUALDEZ, J p:

On the evening of the 13th of March, 1920, a fire broke out on board the motor boat Alfonso when this boat was in the Pasig River, city of Manila, ready to weigh anchor. A

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short distance from the Alfonso the steamer Y. Sontua was lying alongside moored to the wharf of said river.

The fire in the motor boat Alfonso spread to the steamer Y. Sontua, causing damages to her deck, according to plaintiff, amounting to P67,400.

The plaintiff, which is a regular partnership and the owner of the steamer Y. Sontua, brought this action to recover from the defendant, the owner and agent of said motor boat Alfonso, the aforementioned sum as indemnity for the damages alleged by the plaintiff to have been sustained by him through the negligence of the agents and employees of the said defendant, which caused the fire in the aforesaid motor boat Alfonso, wherefrom it spread, and caused said damages to the steamer Y. Sontua. These damages are specified in the two causes of action set forth in the complaint, in the first of which are mentioned the appurtenances and parts of the aforesaid vessel that were destroyed and damaged by the said fire, and for the repair of which the sum of P40,000 was expended. In the second cause of action it is alleged that the plaintiff sustained damages to the amount of P27,400 for the demurrage and delay in the ordinary voyages of the aforesaid vessel Y. Sontua. After denying generally and specifically the allegations of the complaint, the defendant alleges, as special defense, that he has taken no part either directly or indirectly in the acts alleged in the complaint; that if the plaintiff has sustained any damages, they are not the result of the act said to have been committed by the agents and employees of the defendant; and that such damages were caused by a fortuitous event and are not imputable to the negligence of the defendant, or any of his agents, employees, or mandatories.

The case having been tried, the court sentenced the defendant to pay the plaintiff the above-mentioned sum of P67,400, with legal interest thereon from the date of the filing of the complaint, and the costs.

From this judgment the defendant appeals to this court assigning three errors, to wit: (a) The finding that the explosion in question was due to the negligence of the persons in charge of the motor boat Alfonso; (b) the finding and employees; and (c) the awarding of an excessive sum as damages.

With regard to the first error, the following facts are proven: That during the day and night of the 12th, and during the day of the 13th of March, 1920, there were loaded in the said motor boat Alfonso 2,000 cases of petroleum and 8,473 cases of gasoline, of which 5,000 cases of gasoline and 2,000 of petroleum were placed in the hold of said motor boat, and the balance on deck; that said loading was done without permission from the customs authorities; that the said cases were loaded by means of straps supporting 10 or 12 cases at a time; that the said cases of gasoline and petroleum were placed in the hold about 14 feet from the boiler of the main engine and about 4 feet from the boiler of the smaller engine; that on the evening of the 13th of March, 1920, the smaller engine was in operation preparatory to the departure of the motor boat which, at that time, was getting ready to leave; that the fire in said motor boat burst out with an explosion followed by a violent expulsion of gasoline and petroleum; that owing to the proximity of the motor boat to the steamer Y. Sontua, the magnitude of the fire and the inflammability of the material that served as fuel, the fire spread to the said steamer Y. Sontua, and so rapidly that it was impossible for the crew of the Y. Sontua to check its progress.

Expert testimony was also introduced by the plaintiff to the effect that it is but natural that, after several transhipments of more than 8,000 cases of gasoline and 2,000 cases of petroleum there is bound to be a leakage, on an average of 1 to 4 cases per hundred, due to the fact that the loading is effected by means of straps supporting from 10 to 12 cases at a time which, quite frequently, receive violent bumps resulting in damage to the cans and the consequent leakage of either gasoline or petroleum, as the case may be.

It was also shown by expert testimony that the gases formed by the volatilization of the gasoline or petroleum leaking from the cases are apt to accumulate in a compartment,

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such as the hold of a ship, without sufficient ventilation causing the gases to ignite upon coming in contact with a spark or upon the temperature being sufficiently raised.

Under these circumstances we are constrained to hold that the fire which caused the damages for which the plaintiff seeks to be indemnified was the inevitable effect of the explosion and fire which occurred in the motor boat Alfonso; that this explosion and fire in the said motor boat is, with good ground, imputable to the negligence of the persons having charge at that time of said motor boat and under whose direction the loading of the aforesaid cases of petroleum and gasoline had been performed.

The trial court did not, therefore, commit the first error assigned by the appellant.

In the second assignment of error, the appellant contends that the defendant ought not to be held liable for the negligence of his agents and employees.

It is proven that the agents and employees, through whose negligence the explosion and fire in question occurred, were agents, employees, and mandatories of the defendant. Where the vessel is one of freight, a public concern on public utility, its owner or agent is liable for the tortuous acts of his agents (arts. 587, 613, and 618, Code of Commerce; and arts. 1902, 1903, 1908, Civil Code). This principle has been repeatedly upheld in various decisions of this court.

The doctrines cited by the appellant in support of his theory have reference to the relations between principal and agent in general, but not to the relations between ship agent and his agents and employees; for this reason they cannot be applied in the present case.

In American law, principles similar to those in force in the Philippines and contained in the Code of Commerce above cited, are prevailing:

"Vessel owner's liability in general. — The general liability of a vessel owner extends to losses by fire arising from another vessel, or from the shore; and the fact that fire produces the motive power of a boat does not affect the case. Such losses are not within the exceptions either of act of God, or peril of the sea, except by local custom, unless proximately caused by one of these events. In jurisdictions where the civil law obtains, however, it has been held that if property on a steamboat is destroyed by fire, the owners of the boat are not responsible, if it was being navigated with proper diligence, although the accident occurred at night. The common law liability extends even to loss by fires caused entirely by spontaneous combustion of the cargo, without any negligence on the part of master or crew." (R.C.L. vol. 24, pp. 1324-1325.)

With regard to the allegation that the obligations enumerated in article 612 of our Code of Commerce are inherent in the master such inherent duties do not limit to the latter the civil liability arising from their nonfulfillment, but while the master is responsible to the ship agent, the ship agent, in turn, is responsible to third persons, as is clearly provided in article 618 of said Code, in which express mention is made, in subsections 5 and 7, of the duties enumerated in the said article 612.

Therefore there is also no ground for holding that the second error assigned by the appellant has been committed.

The third error is concerned with the amount of the damages sustained by the plaintiff.

It is sufficiently proven that the sum paid by the plaintiff to the Earnshaw Shipyards for the repairs made to the steamer Y. Sontua, damage to which was caused by the fire in question, amount to P27,968; that the materials used in said repairs and paid for by the plaintiff are worth P12,139.30. As to the damages sustained by the plaintiff on account of the delay of the steamer Y. Sontua, the evidence shows that this steamer was delayed ten days in the Pasig River, waiting for available space in the shipyard before it was taken to the said repair-shop; that it was not absolutely necessary that the repair of the damages caused by the fire should be made in the shipyard; that said vessel was taken to the shipyard for the repair of some parts of it not damaged by the fire in question.

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As the evidence does not sufficiently show the time consumed in repairing the actual damage caused by the said fire, nor the time employed in making the other repairs, and as the damage, if any, resulting from the ten days' delay in the Pasig River, is remote and, therefore, not chargeable to the defendant since said delay is in no way imputable to him, we think, in view of all of the circumstances of the case and taking into consideration the importance of all the repairs, whether by fire or otherwise, the delay of seventy days, according to the evidence of the plaintiff, chargeable to the defendant, should be reduced to one-half, or thirty-five days at the rate of P410.84 a day which is the net profit that the aforesaid steamer Y. Sontua failed to realize as a consequence of said delay. We find that the damages sustained by the plaintiff by reason of this delay amount to P14,379.40.

The plaintiff further asks that he be awarded, by way of damages, the sum of P4,400 covering maintenance and salary of the officers and crew of his steamer during the delay aforementioned. We do not feel that he is entitled to this item for the reason that such expenses have already been taken into account in determining the net daily profit above referred to. We do not feel that he is entitled to this item for the reason that such expenses have already been taken into account in determining the net daily profit above referred to. We find that the total sum which the plaintiff is entitled to recover from the defendant as damages under the facts stated is fifty-four thousand four hundred eighty-six pesos and seventy centavos (54,486.70).

The judgment appealed from is hereby modified and the defendant sentenced to pay the plaintiff the sum of P54,486.70 with cost. So ordered.

Araullo, C.J., Avanceña, Villamor, Ostrand, and Johns, JJ., concur.

[G.R. No. 115286. August 11, 1994.]

INTER-ORIENT MARITIME ENTERPRISES, INC., SEA HORSE SHIP MANAGEMENT, INC. and TRENDA WORLD SHIPPING (MANILA), INC., petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION and RIZALINO D. TAYONG, respondents.

SYLLABUS

1.LABOR LAWS AND SOCIAL LEGISLATION; CONDITIONS OF EMPLOYMENT; CAPTAIN OF VESSEL A CONFIDENTIAL AND MANAGERIAL EMPLOYEE. — It is well settled in this jurisdiction that confidential and managerial employees cannot be arbitrarily dismissed at any time, and without cause as reasonably established in an appropriate investigation. Such employees, too, are entitled to security of tenure, fair standards of employment and the protection of labor laws. The captain of a vessel is a confidential and managerial employee within the meaning of the above doctrine. A master or captain, for purposes of maritime commerce, is one who has command of a vessel. A captain commonly performs three (3) distinct roles: (1) he is a general agent of the shipowner; (2) he is also commander and technical director of the vessel; and (3) he is a representative of the country under whose flag he navigates. Of these roles, by far the most important is the role performed by the captain as commander of the vessel; for such role (which, to our mind, is analogous to that of "Chief Executive Officer" [CEO] of a present-day corporate enterprise) has to do with the operation and preservation of the vessel during its voyage and the protection of the passengers (if any) and crew and cargo. In his role as general agent of the shipowner, the captain has authority to sign bills of lading, carry goods aboard and deal with the freight earned, agree upon rates and decide whether to take cargo. The ship captain, as agent of the shipowner, has legal authority to enter into contracts with respect to the vessel and the trading of the vessel, subject to applicable limitations established by statute, contract or

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instructions and regulations of the shipowner. To the captain is committed the governance, care and management of the vessel. Clearly, the captain is vested with both management and fiduciary functions.

2.ID.; TERMINATION OF EMPLOYMENT; ILLEGAL DISMISSAL ESTABLISHED IN CASE AT BAR. — It is plain from the records of the present petition that Captain Tayong was denied any opportunity to defend himself. Petitioners curtly dismissed him from his command and summarily ordered his repatriation to the Philippines without informing him of the charge or charges levelled against him, and much less giving him a change to refute any such charge. In fact, it was only on 26 October 1989 that Captain Tayong received a telegram dated 24 October 1989 from Inter-Orient requiring him to explain why he delayed sailing to South Africa. We also find that the principal contention of petitioners against the decision of the NLRC pertains to facts, that is, whether or not there was actual and sufficient basis for the alleged loss of trust or confidence. We have consistently held that a question of "fact" is, as a general rule, the concern solely of an administrative body, so long as there is substantial evidence of record to sustain its action. The record requires us to reject petitioners' claim that the NLRC's conclusion of fact were not supported by substantial evidence. Petitioner's rely on self-serving affidavits of their own officers and employees predictably tending to support petitioners' allegation that Captain Tayong had performed acts inimical to petitioners' interests for which, supposedly, he was discharged. The official report of Mr. Clark, petitioners' representative, in fact supports the NLRC's conclusion that private respondent Captain did not arbitrarily and maliciously delay the voyage to South Africa. There had been, Mr. Clark stated, a disruption in the normal functioning of the vessel's turbo charger and economizer and that had prevented the full or regular operation of the vessel. Thus, Mr. Clark relayed to Captain Tayong instructions to "maintain reduced RPM" during the voyage to South Africa, instead of waiting in Singapore for the supplies that would permit shipboard repair of the malfunctioning machinery and equipment. Under all the circumstances of this case, we, along with the NLRC, are unable to hold that Captain Tayong's decision (arrived at after consultation with the vessel's Chief Engineer) to wait seven (7) hours in Singapore for the delivery on board the Oceanic Mindoro of the requisitioned supplies needed for the welding-repair, on board the ship, of the turbo-charger and the economizer equipment of the vessel, constituted merely arbitrary, capricious or grossly insubordinate behavior on his part. In the view of the NLRC, that decision of Captain Tayong did not constitute a legal basis for the summary dismissal of Captain Tayong and for termination of his contract with petitioners prior to the expiration of the term thereof. We cannot hold this conclusion of the NLRC to be a grave abuse of discretion amounting to an excess or loss of jurisdiction; indeed, we share that conclusion and make it our own. Clearly, petitioners were angered at Captain Tayong's decision to wait for delivery of the needed supplied before sailing from Singapore, and may have changed their estimate of their ability to work with him and of his capabilities as a ship captain. Assuming that to be petitioners' management prerogative, that prerogative is nevertheless not to be exercised, in the case at bar, at the cost of loss of Captain Tayong's rights under his contract with petitioner's and under Philippine law.

3.COMMERCIAL LAW; CODE OF COMMERCE; CAPTAIN'S CONTROL OF VESSEL AND REASONABLE DISCRETION AS TO ITS NAVIGATION. — A ship's captain must be accorded a reasonable measure of discretionary authority to decide what the safety of the ship and of its crew and cargo specifically requires on a stipulated ocean voyage. The captain is held responsible, and properly so, for such safety. He is right there on the vessel, in command of its and (it must be presumed) knowledgeable as to the specific requirements of seaworthiness and the particular risks and perils of the voyage he is to embark upon. The applicable principle is that the captain has control of all departments of service in the vessel, and reasonable discretion as to its navigation. It is the right and duty of the captain, in the exercise of sound discretion and in good faith, to do all things with respect to the vessel and its equipment and conduct of the voyage which are reasonably necessary for the protection and preservation of the interests under his charge, whether those be of the shipowner, charterers, cargo owners or of underwriters. It is a basic

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principle of admiralty law that in navigating a merchantman, the master must be left free to exercise his own best judgment. The requirements of safe navigation compel us to reject any suggestion that the judgment and discretion of the captain of a vessel may be confined within a straitjacket, even in this age of electronic communications. Indeed, if the ship captain is convinced, as a reasonably prudent and competent mariner acting in good faith that the shipowner's or ship agent's instructions (insisted upon by radio or telefax from their officers thousand of miles away) will result, in the very specific circumstances facing him, in imposing unacceptable risks of loss or serious danger to ship or crew, he cannot casually seek absolution from his responsibility, if a marine casualty occurs, in such instructions. Compagnie de Commerce v. Hamburg is instructive in this connection. There, this Court recognized the discretionary authority of the master of a vessel and his right to exercise his best judgment, with respect to navigating the vessel he commands. In Compagnie de Commerce, a charger party was executed between Compagnie de Commerce and the owners of the vessel Sambia, under which the former as charterer loaded on board the Sambia, at the port of Saigon, certain cargo destined for the Ports of Dunkirk and Hamburg in Europe. The Sambia flying the German flag, could not, in the judgment of its master, reach its ports of destination because war (World War I) had been declared between Germany and France. The master of the Sambia decided to deviate from the stipulated voyage and sailed instead for the Port of Manila.Compagnie de Commerce sued in the Philippines for damages arising from breach of the charter party and unauthorized sale of the cargo. In affirming the decision of the trial court dismissing the complaint, our Supreme Court held that the master of the Sambia had reasonable grounds to apprehend that the vessel was in danger of seizure or capture by the French authorities in Saigon was justified by necessity to elect the course which the took — i.e., to flee Saigon for the Port of Manila — with the result that the shipowner was relieved from liability for the deviation from the stipulated route and from liability for damage to the cargo.

4.ID.; ID.; COMMERCIAL LAW; CODE OF COMMERCE; CAPTAIN'S CONTROL OF VESSEL AND REASONABLE DISCRETION AS TO ITS NAVIGATION. — "The danger from which the master of the Sambia fled a real and not merely an imaginary one as counsel for shipper contends. Seizure at the hands of an 'enemy of the King', though not inevitable, was a possible outcome of a failure to leave the port of Saigon; and we cannot say that under the conditions existing at the time when the master elected to flee from that port, there were no grounds for a 'reasonable apprehension of danger' from seizure by the French authorities, and therefore no necessity for flight. The word 'necessity' when applied to mercantile affairs, where the judgment must in the nature of things be exercised, cannot, of course, mean an irresistible compelling power. what is meant by it in such cases is the force of circumstances which determine the course of a man ought to take. Thus, where by the force of circumstances, a man has the duty cast upon him of taking some action for another, and under that obligation adopts a course which, to the judgment of a wise and prudent man, is apparently the best for the interest of the persons for whom he acts in a given emergency, it may properly be said of the course so taken that it was in a mercantile sense necessary to take it." Compagnie de Commerce contended that the shipowner should, at all events, be held responsible for the deterioration in the value of the cargo incident to its long stay on board the vessel from the date of its arrival in Manila until the cargo was sold. The Supreme Court, in rejecting this contention also, declared that: "But it is clear that the master could not be required to act on the very day of his arrival; or before he had a reasonable opportunity to ascertain whether he could hope to carry out his contract and earn his freight; and that he should not be held responsible for a reasonable delay incident to an effort to ascertain the wishes of the freighter, and upon failure to secure prompt advice, to decide for himself as to the course which he should adopt to secure the interests of the absent owner of the property aboard the vessel. The master is entitled to delay for such a period as may be reasonable under the circumstances, before deciding on the course he will adopt. he may claim a fair opportunity of carrying out a contract, and earning the freight, whether by repairing or transshipping. should the repair of the ship be undertaken, it must be proceeded with diligently; and if so done, the freighter will have no ground of compliant, although the consequent delay be

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a long one, unless, indeed, the cargo is perishable, and likely to be injured by the delay. Where that is the case, it ought to be forwarded, or sold, or given up, as the case may be, without waiting for repairs. A shipowner or shipmaster (if communication with the shipowner is impossible), will be allowed a reasonable time in which to decide what course he will adopt in such cases as those under discussion; time must be allowed to him to ascertain the facts, and to balance the conflicting interests involved, of shipowner, cargo owner, underwriter on ship and freight. But once the time has elapsed, he is bound to act promptly according as he has elected either to repair, or abandon the voyage, or tranship. If he delays, and owing to that delay a perishable cargo suffers damage; he cannot escape that obligation by pleading the absence of definite instructions from the owners of the cargo or their underwriters, since he has control of the cargo and is entitled to elect."

D E C I S I O N

FELICIANO, J p:

Private respondent Rizalino Tayong, a licensed Master Mariner with experience in commanding ocean-going vessels, was employed on 6 July 1989 by petitioners Trenda World Shipping (Manila), Inc. and Sea Horse Ship Management, Inc. through petitioner Inter-Orient Maritime Enterprises, Inc. as Master of the vessel M/VOceanic Mindoro, for a period of one (1) year, as evidenced by an employment contract. On 15 July 1989, Captain Tayong assumed command of petitioners' vessel at the port of Hongkong. His instructions were to replenish bunker and diesel fuel, to said forthwith to Richard Bay, South Africa, and there to load 120,000 metric tons of coal.

On 16 July 1989, while at the Pork of Hongkong and in the process of unloading cargo, Captain Tayong received a weather report that a storm code-named "Gordon" would shortly hit Hongkong. Precautionary measures were taken to secure the safety of the vessel, as well as its crew, considering that the vessel's turbo-charger was leaking and the vessel was fourteen (14) years old.

On 21 July 1989, Captain Tayong followed-up the requisition by the former captain of the Oceanic Mindoro for supplies of oxygen and acetylene, necessary for the welding-repair of the turbo-charger and the economizer. 1 This requisition had been made upon request of the Chief Engineer of the vessel and had been approved by the shipowner. 2

On 25 July 1989, the vessel sailed from Hong Kong for Singapore. In the Master's sailing message, Captain Tayong reported a water leak from M.E. Turbo Charger No. 2 Exhaust gas casing. He was subsequently instructed to block off the cooling water and maintain reduced RPM unless authorized by the owners. 3

On 29 July 1989, while the vessel was en route to Singapore, Captain Tayong reported that the vessel had stopped in mid-ocean for six (6) hours and forty-five (45) minutes due to a leaking economizer. He was instructed to shut down the economizer and use the auxiliary boiler instead. 4

On 31 July 1989 at 0607 hrs., the vessel arrived at the port of Singapore.  5 The Chief Engineer reminded Captain Tayong that the oxygen and acetylene supplies had not been delivered. 6 Captain Tayong inquired from the ship's agent in Singapore about the supplies. The

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ship agent stated that these could only be delivered at 0800 hours on August 1, 1989 as the stores had closed. 7

Captain Tayong called the shipowner, Sea Horse Ship Management, Ltc., in London and informed them that the departure of the vessel for South Africa may be affected because of the delay in the delivery of the supplies. 8

Sea Horse advised Captain Tayong to contact its Technical Director, Mr. Clark, who was in Tokyo and who could provide a solution for the supply of said oxygen and acetylene. 9

On the night of 31 July 1989, Mr. Clark received a call from Captain Tayong informing him that the vessel cannot said without the oxygen and acetylene for safety reasons due to the problems with the turbo charger and economizer. Mr. Clark responded that by shutting off the water to the turbo charger and using the auxiliary boiler, there should be no further problem. According to Mr. Clark, Captain Tayong agreed with him that the vessel could sail as scheduled on 0100 hours on 1 August 1989 for South Africa. 10

According to Captain Tayong, however, he communicated to Sea Horse his reservations regarding proceeding to South Africa without the requested supplied, 11 and was advised by Sea Horse to wait for the supplies at 0800 hrs. of 1 August 1989, which Sea Horse had arranged to be delivered on board the Oceanic Mindoro. 12 At 0800 hours on 1 August 1989, the requisitioned supplies were delivered and Captain Tayong immediately sailed for Richard Bay.

When the vessel arrived at the port of Richard Bay, South Africa on 16 August 1989, Captain Tayong was instructed to turn-over his post to the new captain. He was thereafter repatriated to the Philippines, after serving petitioners for a little more than two weeks.  13 He was not informed of the charges against him. 14

On 5 October 1989, Captain Tayong instituted a complaint for illegal dismissal before the Philippine Overseas Employment Administration ("POEA"), claiming his unpaid salary for the unexpired portion of the written employment contract, plus attorney's fees.

Petitioners, in their answer to the complaint, denied that they had illegally dismissed Captain Tayong. Petitioners alleged that he had refused to said immediately to South Africa to the prejudice and damage of petitioners. According to petitioners, as a direct result of Captain Tayong's delay, petitioners' vessel was placed "off-hire" by the charterers refused to pay the charter hire or compensation corresponding to twelve (12) hours, amounting to US $15,500.00, due to time lost in the voyage. They stated that they had dismissed private respondent for loss of trust and confidence.

The POEA dismissed Captain Tayong's complaint and held that there was valid cause for his untimely repatriation. The decision of the POEA placed considerable weight on petitioners' assertion that all the time lost as a result of the delay was caused by Captain Tayong and that his concern for the oxygen and acetylene was not legitimate as these supplies were not necessary or indispensable for running the vessel. The POEA believed that the Captain had unreasonably refused to follow the instructions of petitioners and their representative, despite petitioner's firm assurances that the vessel was seaworthy for the voyage to South Africa.

On appeal, the National Labor Relations Commission ("NLRC") reversed and set aside the decision of the POEA. The NLRC found that Captain Tayong had not been afforded an opportunity to be heard and that no substantial evidence was adduced to establish the basis for petitioners' loss of trust or confidence in the Captain. The NLRC declared that he had only acted in accordance with his duties to maintain the seaworthiness of the vessel and to insure the safety

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of the ship and the crew. The NLRC directed petitioners to pay the Captain (a) his salary for the unexpired portion of the contract at US$1,900.00 a month, plus one (1) month leave benefit; and (b) attorney's fees equivalent to ten percent (10%) of the total award due.

Petitioners, before this Court, claim that the NLRC had acted with grave abuse of discretion. Petitioners allege that they had adduced sufficient evidence to establish the basis for private respondent's discharge, contrary to the conclusion reached by the NLRC. Petitioners insist that Captain Tayong, who must protect the interest of petitioners, had caused them unnecessary damage, and that they, as owners of the vessel, cannot be compelled to keep in their employ a captain of a vessel in whom they have lost their trust and confidence. Petitioners finally contend that the award to the Captain of his salary corresponding to the unexpired portion of the contract and one (1) month leave pay, including attorney's fees, also constituted grave abuse of discretion.

The petition must fail.

We note preliminary that petitioners failed to attach a clearly legible, properly certified, true copy of the decision of the NLRC dated 23 April 1994, in violation of requirement no. 3 of Revised Circular No. 1-88. On this ground alone, the petition could have been dismissed. But the Court chose not to do so, in view of the nature of question here raised and instead required private respondent to file a comment on the petition. Captain Tayong submitted his comment. The Office of the Solicitor General asked for an extension of thirty (30) days to file its comment on behalf of the NLRC. We consider that the Solicitor General's comment may be dispensed with in this case.

It is well settled in this jurisdiction that confidential and managerial employees cannot be arbitrarily dismissed at any time, and without cause as reasonably established in an appropriate investigation. 15 Such employees, too, are entitled to security of tenure, fair standards of employment and the protection of labor laws.

The captain of a vessel is a confidential and managerial employee within the meaning of the above doctrine. A master or captain, for purposes of maritime commerce, is one who has command of a vessel. A captain commonly performs three (3) distinct roles: (1) he is a general agent of the shipowner; (2) he is also commander and technical director of the vessel; and (3) he is a representative of the country under whose flag he navigates. 16 Of these roles, by far the most important is the role performed by the captain as commander of the vessel; for such role (which, to our mind, is analogous to that of "Chief Executive Officer" [CEO] of a present-day corporate enterprise) has to do with the operation and preservation of the vessel during its voyage and the protection of the passengers (if any) and crew and cargo. In his role as general agent of the shipowner, the captain has authority to sign bills of lading, carry goods aboard and deal with the freight earned, agree upon rates and decide whether to take cargo. The ship captain, as agent of the shipowner, has legal authority to enter into contracts with respect to the vessel and the trading of the vessel, subject to applicable limitations established by statute, contract or instructions and regulations of the shipowner. 17 To the captain is committed the governance, care and management of the vessel. 18 Clearly, the captain is vested with both management and fiduciary functions.

It is plain from the records of the present petition that Captain Tayong was denied any opportunity to defend himself. Petitioners curtly dismissed him from his command and summarily ordered his repatriation to the Philippines without informing him of the charge or charges levelled against him, and much less giving him a change to refute any such charge. In fact, it was only on 26 October 1989 that Captain Tayong received a telegram dated 24 October 1989 from Inter-Orient requiring him to explain why he delayed sailing to South Africa.

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We also find that the principal contention of petitioners against the decision of the NLRC pertains to facts, that is, whether or not there was actual and sufficient basis for the alleged loss of trust or confidence. We have consistently held that a question of "fact" is, as a general rule, the concern solely of an administrative body, so long as there is substantial evidence of record to sustain its action.

The record requires us to reject petitioners' claim that the NLRC's conclusion of fact were not supported by substantial evidence. Petitioner's rely on self-serving affidavits of their own officers and employees predictably tending to support petitioners' allegation that Captain Tayong had performed acts inimical to petitioners' interests for which, supposedly, he was discharged. The official report of Mr. Clark, petitioners' representative, in fact supports the NLRC's conclusion that private respondent Captain did not arbitrarily and maliciously delay the voyage to South Africa. There had been, Mr. Clark stated, a disruption in the normal functioning of the vessel's turbo charger 19 and economizer and that had prevented the full or regular operation of the vessel. Thus, Mr. Clark relayed to Captain Tayong instructions to "maintain reduced RPM" during the voyage to South Africa, instead of waiting in Singapore for the supplies that would permit shipboard repair of the malfunctioning machinery and equipment.

More importantly, a ship's captain must be accorded a reasonable measure of discretionary authority to decide what the safety of the ship and of its crew and cargo specifically requires on a stipulated ocean voyage. The captain is held responsible, and properly so, for such safety. He is right there on the vessel, in command of it and (it must be presumed) knowledgeable as to the specific requirements of seaworthiness and the particular risks and perils of the voyage he is to embark upon. The applicable principle is that the captain has control of all departments of service in the vessel, and reasonable discretion as to its navigation. 20 It is the right and duty of the captain, in the exercise of sound discretion and in good faith, to do all things with respect to the vessel and its equipment and conduct of the voyage which are reasonably necessary for the protection and preservation of the interests under his charge, whether those be of the shipowners, charterers, cargo owners or of underwriters. 21 It is a basic principle of admiralty law that in navigating a merchantman, the master must be left free to exercise his own best judgment. The requirements of safe navigation compel us to reject any suggestion that the judgment and discretion of the captain of a vessel may be confined within a straitjacket, even in this age of electronic communications. 22 Indeed, if the ship captain is convinced, as a reasonably prudent and competent mariner acting in good faith that the shipowner's or ship agent's instructions (insisted upon by radio or telefax from their officers thousand of miles away) will result, in the very specific circumstances facing him, in imposing unacceptable risks of loss or serious danger to ship or crew, he cannot casually seek absolution from his responsibility, if a marine casualty occurs, in such instructions. 23

Compagnie de Commerce v. Hamburg 24 is instructive in this connection. There, this Court recognized the discretionary authority of the master of a vessel and his right to exercise his best judgment, with respect to navigating the vessel he commands. In Compagnie de Commerce, a charter party was executed betweenCompagnie de Commerce and the owners of the vessel Sambia, under which the former as charterer loaded on board the Sambia, at the port of Saigon, certain cargo destined for the Ports of Dunkirk and Hamburg in Europe. The Sambia flying the German flag, could not, in the judgment of its master, reach its ports of destination because war (World War I) had been declared between Germany and France. The master of the Sambia decided to deviate from the stipulated voyage and sailed instead for the Port of Manila. Compagnie de Commerce sued in the Philippines for damages arising from breach of the charter party and unauthorized sale of the cargo. In affirming the decision of the trial court dismissing the complaint, our Supreme Court held that the master of the Sambia had reasonable grounds to apprehend that the vessel was in danger of seizure or capture by the French

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authorities in Saigon was justified by necessity to elect the course which the took — i.e., to flee Saigon for the Port of Manila — with the result that the shipowner was relieved from liability for the deviation from the stipulated route and from liability for damage to the cargo. The Court said:

"The danger from which the master of the Sambia fled a real and not merely an imaginary one as counsel for shipper contends. Seizure at the hands of an 'enemy of the King', though not inevitable, was a possible outcome of a failure to leave the port of Saigon; and we cannot say that under the conditions existing at the time when the master elected to flee from that port, there were no grounds for a 'reasonable apprehension of danger' from seizure by the French authorities, and therefore no necessity for flight.

The word 'necessity' when applied to mercantile affairs, where the judgment must in the nature of things be exercised, cannot, of course, mean an irresistible compelling power. What is meant by it in such cases is the force of circumstances which determine the course of a man ought to take. Thus, where by the force of circumstances, a man has the duty cast upon him of taking some action for another, and under that obligation adopts a course which, to the judgment of a wise and prudent man, is apparently the best for the interest of the persons for whom he acts in a given emergency, it may properly be said of the course so taken that it was in a mercantile sense necessary to take it." 25 (Emphasis supplied)

Compagnie de Commerce contended that the shipowner should, at all events, be held responsible for the deterioration in the value of the cargo incident to its long stay on board the vessel from the date of its arrival in Manila until the cargo was sold. The Supreme Court, in rejecting this contention also, declared that:

"But it is clear that the master could not be required to act on the very day of his arrival; or before he had a reasonable opportunity to ascertain whether he could hope to carry out his contract and earn his freight; and that he should not be held responsible for a reasonable delay incident to an effort to ascertain the wishes of the freighter, and upon failure to secure prompt advice, to decide for himself as to the course which he should adopt to secure the interests of the absent owner of the property aboard the vessel.

The master is entitled to delay for such a period as may be reasonable under the circumstances, before deciding on the course he will adopt. He may claim a fair opportunity of carrying out a contract, and earning the freight, whether by repairing or transshipping. Should the repair of the ship be undertaken, it must be proceeded with diligently; and if so done, the freighter will have no ground of compliant, although the consequent delay be a long one, unless, indeed, the cargo is perishable, and likely to be injured by the delay. Where that is the case, it ought to be forwarded, or sold, or given up, as the case may be, without waiting for repairs.

A shipowner or shipmaster (if communication with the shipowner is impossible), will be allowed a reasonable time in which to decide what course he will adopt in such cases as those under discussion; time must be allowed to him to ascertain the facts, and to balance the conflicting interests involved, of shipowner, cargo owner, underwriter on ship and freight. But once the time has elapsed, he is bound to act promptly according as he has elected either to repair, or abandon the voyage, or tranship. If he delays, and owing to that delay a perishable cargo suffers damage, the shipowner will be liable for that damage; he cannot escape that obligation by pleading the absence of definite instructions from the owners of the cargo or their underwriters, since he has control of the cargo and is entitled to elect." 26 (Emphasis supplied)

The critical question, therefore, is whether or not Captain Tayong had reasonable grounds to believe that the safety of the vessel and the crew under his command or the possibility of substantial delay at sea required him to wait for the delivery of the supplies needed for the

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repair of the turbo-charger and the economizer before embarking on the long voyage from Singapore to South Africa.

In this connection, it is especially relevant to recall that, according to the report of Mr. Robert Clark, Technical Director of petitioner Sea Horse Ship Management, Inc., the Oceanic Mindoro had stopped in mid-ocean for six (6) hours and forty-five (45) minutes on its way to Singapore because of its leaking economizer. 27 Equally relevant is the telex dated 2 August 1989 sent by Captain Tayong to Sea Horse after Oceanic Mindoro had left Singapore and was en route to South Africa. In this telex, Captain Tayong explained his decision to Sea Horse in the following terms:

"I CAPT R.D. TAYONG RE: UR PROBLEM IN SPORE (SINGAPORE) I EXPLAIN AGN TO YOU THAT WE ARE INSECURITY/DANGER TO SAIL IN SPORE W/OUT HAVING SUPPLY OF OXY/ACET. PLS UNDERSTAND HV PLENTY TO BE DONE REPAIR FM MAIN ENGINE LIKE TURBO CHARGER PIPELINE, ECONOMIZER LEAKAGE N ETC WE COULD NOT FIX IT W/OUT OXY/ACET ONBOARD. I AND MR. CLARK WE CONTACTED EACH OTHER BY PHONE IN PAPAN N HE ADVSED US TO SAIL TO RBAY N WILL SUPPLY OXY/ACET UPON ARRIVAL RBAY HE ALSO EXPLAINED TO MY C/E HOW TO FIND THE REMEDY W/OUT OXY/ACET BUT C/E HE DISAGREED MR. CLARK IDEA, THAT IS WHY WE URG REQUEST[ED] YR KIND OFFICE TO ARRANGE SUPPLY OXY/ACET BEFORE SAILING TO AVOID RISK/DANGER OR DELAY AT SEA N WE TOOK PRECAUTION UR TRIP FOR 16 DAYS FM SPORE TO RBAY. PLS. UNDERSTAND UR SITUATION." 28 (Emphasis partly in source and partly supplied)

Under all the circumstances of this case, we, along with the NLRC, are unable to hold that Captain Tayong's decision (arrived at after consultation with the vessel's Chief Engineer) to wait seven (7) hours in Singapore for the delivery on board the Oceanic Mindoro of the requisitioned supplies needed for the welding-repair, on board the ship, of the turbo-charger and the economizer equipment of the vessel, constituted merely arbitrary, capricious or grossly insubordinate behavior on his part. In the view of the NLRC, that decision of Captain Tayong did not constitute a legal basis for the summary dismissal of Captain Tayong and for termination of his contract with petitioners prior to the expiration of the term thereof. We cannot hold this conclusion of the NLRC to be a grave abuse of discretion amounting to an excess or loss of jurisdiction; indeed, we share that conclusion and make it our own.

Clearly, petitioners were angered at Captain Tayong's decision to wait for delivery of the needed supplies before sailing from Singapore, and may have changed their estimate of their ability to work with him and of his capabilities as a ship captain. Assuming that to be petitioners' management prerogative, that prerogative is nevertheless not to be exercised, in the case at bar, at the cost of loss of Captain Tayong's rights under his contract with petitioner's and under Philippine law.

ACCORDINGLY, petitioners having failed to show grave abuse of discretion amounting to loss or excess of jurisdiction on the part of the NLRC in rendering its assailed decision, the Petition for Certiorari is hereby DISMISSED, for lack of merit. Costs against petitioners.

SO ORDERED.

Bidin, Romero, Melo and Vitug, JJ., concur.

[G.R. No. L-46340. April 28, 1983.]

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SWEET LINES, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, MICAELA B. QUINTOS, FR. JOSE BACATAN, S.J., MARCIANO CABRAS and ANDREA VELOSO, respondents.

Felixberto Leonardo and Ramon Tuangco for petitioner.

Expedito P. Bugarin for respondents.

SYLLABUS

1.CIVIL LAW; COMMON CARRIERS; FAILURE TO FULFILL UNDERTAKING AND/OR INTERRUPTION OF TRIP; LIABILITY FOR DAMAGES; EXISTENCE OF FORTUITOUS EVENT. A CRUCIAL FACTOR. — The crucial factor then is the existence of a fortuitous event or force majeure. Without it, the right to damages and indemnity exists against a captain who fails to fulfill his undertaking or where the interruption has been caused by the captain exclusively. As found by both Courts below, there was no fortuitous event or force majeure which prevented the vessel from fulfilling its undertaking of taking private respondents to Catbalogan. In the first place, mechanical defects in the carrier are not considered a caso fortuito that exempts the carrier from responsibility (Landingin vs. Pangasinan Transportation Co., 33 SCRA 284 [1970]). In the second place, even granting arguendo that the engine failure was a fortuitous event, it accounted only for the delay in departure. When the vessel finally left the port of Cebu on July 10, 1972, there was no longer any force mucure that justified by-passing a port of call. The vessel was completely repaired the following day after it was towed back to Cebu. In fact, after docking at Tacloban City, it left the next day for Manila to complete its voyage.

2.ID.; ID.; LIABILITY; MAY NOT BE DIMINISHED OR CANCELLED BY CONDITIONS PRINTED AT THE BACK OF THE TICKET. — In defense, petitioner cannot rely on the conditions in small hold print at the back of the ticket. Even assuming that those conditions are squarely applicable to the case at bar, petitioner did not comply with the same. It did not cancel the ticket nor did it refund the value of the tickets to private respondents. Besides, it was not the vessel's sailing schedule that was involved. Private respondents' complaint is directed not at the delayed departure the next day but at the by-passing of Catbalogan, their destination. Had petitioner notified them previously, and offered to bring them to their destination at its expense, or refunded the value of the tickets purchased, perhaps, this controversy would not have arisen. Furthermore, the conditions relied upon by petitioner cannot prevail over Articles 614 and 698 of the Code of Commerce heretofore quoted.

3.ID.; ID.; CIVIL LIABILITY OF OWNER AND SHIP AGENT. — The voyage to Catbalogan was "interrupted" by the captain upon instruction of management. The "interruption" was not due to fortuitous event or force majeure nor to disability of the vessel. Having been caused by the captain upon instruction of management, the passengers' right to indemnity is evident. The owner of a vessel and the ship agent shall be civilly liable for the acts of the captain.

4.ID.; MORAL DAMAGES; RECOVERABLE IN THE CASE AT BAR. — Under Article 2220 of the Civil Code, moral damages are justly due in breaches of contract where the defendant acted fraudulently or in bad faith. Both the Trial Court and the Appellate Court found that there was bad faith on the part of petitioner. That finding of bad faith is binding on this Court, since it is not the function of the Court to analyze and review evidence on this point all over again, aside from the fact that the Court finds it faithful to the meaning of bad faith enunciated thus: "Bad faith means a breach of a known duty through some motive or interest or illwill. Self-enrichment or fraternal interest, and not personal illwill, may have been the motive, but it is malice nevertheless." Under the circumstances, however, the Court finds the award of moral damages

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excessive and accordingly reduce them to P3,000.00, respectively, for each of the private respondents.

5.ID.; ATTORNEY'S FEES; AWARD HELD REASONABLE. — The total award of attorney's fees of P5,000.00 is in order considering that the case has reached this Tribunal.

6.ID.; EXEMPLARY DAMAGES; AWARD DISCRETIONARY UPON THE COURT. — Insofar as exemplary damages are concerned, although there was bad faith, the Court is not inclined to grant them in addition to moral damages. Exemplary damages cannot be recovered as a matter of right; the Court decides whether or not they should be adjudicated. The objective to meet its schedule might have been called for, but petitioner should have taken the necessary steps for the protection of its passengers under its contract of carriage.

7.ID.; ACTUAL OR COMPENSATORY DAMAGES; NOT MITIGATED WHEN HARM OUTWEIGHS BENEFIT. — Article 2215(2) of the Civil Code invoked by petitioner is inapplicable herein. The harm done to private respondents outweighs any benefits they may have derived from being transported to Tacloban instead of being taken to Catbalogan, their destination and the vessel's first port of call, pursuant to its normal schedule.

R E S O L U T I O N

MELENCIO-HERRERA, J p:

For having by-passed a port of call without previous notice, petitioner shipping company and the ship captain were sued for damages by four of its passengers, private respondents herein, before the then Court of First Instance of Cebu, Branch VIII.

Briefly, the facts of record show that private respondents purchased first-class tickets from petitioner at the latter's office in Cebu City. They were to board petitioner's vessel, M/V Sweet Grace, bound for Catbalogan, Western Samar. Instead of departing at the scheduled hour of about midnight on July 8, 1972, the vessel set sail at 3:00 A.M. of July 9, 1972 only to be towed back to Cebu due to engine trouble, arriving there at about 4:00 P.M. on the same day. Repairs having been accomplished, the vessel lifted anchor again on July 10, 1972 at around 8:00 A.M.

Instead of docking at Catbalogan, which was the first port of call, the vessel proceeded direct to Tacloban at around 9:00 P.M. of July 10, 1972. Private respondents had no recourse but to disembark and board a ferryboat to Catbalogan.

Hence, this suit for damages for breach of contract of carriage which the Trial Court, affirmed by respondent Appellate Court, awarded as follows:

"IN THE LIGHT OF THE FOREGOING OBSERVATIONS, judgment is rendered ordering the defendant Sweet Lines, Incorporated to pay to the plaintiffs the following:

"1)P75,000.00 as moral damages divided among the plaintiffs as follows: P30,000.00 for Mrs. Micaela B. Quintos, P25,000.00 for Jesuit Father Jose Bacatan; P10,000.00 for Mrs. Andrea Veloso and P10,000.00 for plaintiff Mike Cabras;

2)P30,000.00 as exemplary or corrective damages;

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3)Interest at the legal rate of 6% per annum on the moral and exemplary damages as set forth above from the date of this decision until said damages are fully paid;

4)P5,000.00 as attorney's fees; and

5)The costs.

Counterclaim dismissed."

The governing provisions are found in the Code of Commerce and read as follows:

"ART. 614.A captain who, having agreed to make a voyage, fails to fulfill his undertaking, without being prevented by fortuitous event or force majeure, shall indemnify all the losses which his failure may cause, without prejudice to criminal penalties which may be proper.

and

"ART. 698.In case of interruption of a voyage already begun, the passengers shall only be obliged to pay the fare in proportion to the distance covered, without right to recover damages if the interruption is due to fortuitous event or force majeure, but with a right to indemnity, if the interruption should have been caused by the captain exclusively. If the interruption should be caused by the disability of the vessel, and the passenger should agree to wait for her repairs, he may not be required to pay any increased fare of passage, but his living expenses during the delay shall be for his own account."

The crucial factor then is the existence of a fortuitous event or force majeure. Without it, the right to damages and indemnity exists against a captain who fails to fulfill his undertaking or where the interruption has been caused by the captain exclusively.

As found by both Courts below, there was no fortuitous event or force majeure which prevented the vessel from fulfilling its undertaking of taking private respondents to Catbalogan. In the first place, mechanical defects in the carrier are not considered a caso fortuito that exempts the carrier from responsibility. 1

In the second place, even granting arguendo that the engine failure was a fortuitous event, it accounted only for the delay in departure. When the vessel finally left the port of Cebu on July 10, 1972, there was no longer any force majeure that justified by-passing a port of call. The vessel was completely repaired the following day after it was towed back to Cebu. In fact, after docking at Tacloban City, it left the next day for Manila to complete its voyage. 2

The reason for by-passing the port of Catbalogan, as admitted by petitioner's General Manager, was to enable the vessel to catch up with its schedule for the next week. The record also discloses that there were 50 passengers for Tacloban compared to 20 passengers for Catbalogan, 3 so that the Catbalogan phase could be scrapped without too much loss for the company. Cdpr

In defense, petitioner cannot rely on the conditions in small bold print at the back of the ticket reading:

"The passenger's acceptance of this ticket shall be considered as an acceptance of the following conditions:

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3.In case the vessel cannot continue or complete the trip for any cause whatsoever, the carrier reserves the right to bring the passenger to his/her destination at the expense of the carrier or to cancel the ticket and refund the passenger the value of his/her ticket;

xxx xxx xxx

11.The sailing schedule of the vessel for which this ticket was issued is subject to change without previous notice." (Exhibit "1-A").

Even assuming that those conditions are squarely applicable to the case at bar, petitioner did not comply with the same. It did not cancel the ticket nor did it refund the value of the tickets to private respondents. Besides, it was not the vessel's sailing schedule that was involved. Private respondents' complaint is directed not at the delayed departure the next day but at the by-passing of Catbalogan, their destination. Had petitioner notified them previously, and offered to bring them to their destination at its expense, or refunded the value of the tickets purchased, perhaps, this controversy would not have arisen.

Furthermore, the conditions relied upon by petitioner cannot prevail over Articles 614 and 698 of the Code of Commerce heretofore quoted.

The voyage to Catbalogan was "interrupted" by the captain upon instruction of management. The "interruption" was not due to fortuitous event or for majeure nor to disability of the vessel. Having been caused by the captain upon instruction of management, the passengers' right to indemnity is evident. The owner of a vessel and the ship agent shall be civilly liable for the acts of the captain. 4

Under Article 2220 of the Civil Code, moral damages are justly due in breaches of contract where the defendant acted fraudulently or in bad faith. Both the Trial Court and the Appellate Court found that there was bad faith on the part of petitioner in that:  Cdpr

"(1)Defendants-appellants did not give notice to plaintiffs-appellees as to the change of schedule of the vessel;

(2)Knowing fully well that it would take no less than fifteen hours to effect the repairs of the damaged engine, defendants-appellants instead made announcement of assurance that the vessel would leave within a short period of time, and when plaintiffs-appellees wanted to leave the port and gave up the trip, defendants-appellants' employees would come and say, `we are leaving, already.'

(3)Defendants-appellants did not offer to refund plaintiffs-appellees' tickets nor provide them with transportation from Tacloban City to Catbalogan. 5

That finding of bad faith is binding on us, since it is not the function of the Court to analyze and review evidence on this point all over again 6 aside from the fact that we find it faithful to the meaning of bad faith enunciated thus:

"Bad faith means a breach of a known duty through some motive or interest or illwill. Self-enrichment or fraternal interest, and not personal illwill, may have been the motive, but it is malice nevertheless." 7

Under the circumstances, however, we find the award of moral damages excessive and accordingly reduce them to P3,000.00, respectively, for each of the private respondents.

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The total award of attorney's fees of P5,000.00 is in order considering that the case has reached this Tribunal.

Insofar as exemplary damages are concerned, although there was bad faith, we are not inclined to grant them in addition to moral damages. Exemplary damages cannot be recovered as a matter of right; the Court decides whether or not they should be adjudicated. 8 The objective to meet its schedule might have been called for, but petitioner should have taken the necessary steps for the protection of its passengers under its contract of carriage.  llcd

Article 2215(2) of the Civil Code 9 invoked by petitioner is in-applicable herein. The harm done to private respondents outweighs any benefits they may have derived from being transported to Tacloban instead of being taken to Catbalogan, their destination and the vessel's first port of call, pursuant to its normal schedule.

ACCORDINGLY, the judgment appealed from is hereby modified in that petitioner is hereby sentenced to indemnify private respondents in the sum of P3,000.00 each, without interest, plus P1,250.00, each, by way of attorney's fees and litigation expenses.

Costs against petitioner.

SO ORDERED.

Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.

[G.R. No. 130068. October 1, 1998.]

FAR EASTERN SHIPPING COMPANY, petitioner, vs. COURT OF APPEALS and PHILIPPINE PORTS AUTHORITY, respondents.

[G.R. No. 130150. October 1, 1998.]

MANILA PILOTS ASSOCIATION, petitioner, vs. PHILIPPINE PORTS AUTHORITY and FAR EASTERN SHIPPING COMPANY, respondents.

SYLLABUS

1.REMEDIAL LAW; CIVIL PROCEDURE; PETITION FOR REVIEW FROM THE REGIONAL TRIAL COURTS TO THE COURT OF APPEALS; REQUIREMENTS; CERTIFICATION AGAINST FORUM SHOPPING; A CERTIFICATION EXECUTED BY THE COUNSEL IS A DEFECTIVE CERTIFICATION CLEARLY EQUIVALENT TO NON-COMPLIANCE OF THE RULES AND CONSTITUTES A VALID CAUSE FOR DISMISSAL OF THE PETITION. — It must be stressed that the certification against forum shopping ordained under the Rules is to be executed by the petitioner, and not by counsel. Obviously it is the petitioner, and not always the counsel whose professional services have been retained for a particular case,. who is in the best position to know whether he or it actually filed or caused the filing of a petition in that case. Hence, a certification against forum shopping by counsel is a defective certification. It is clearly equivalent to non-compliance with the requirement under Section 2, Rule 42 in relation to Section 4, Rule 45, and constitutes a valid cause for dismissal of the petition.

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2.COMMERCIAL LAW; MARITIME AND ADMIRALTY LAWS; CUSTOMS ADMINISTRATIVE ORDER NO. 15-65; RULES FOR COMPULSORY PILOTAGE; COMPULSORY PILOT FOUND NEGLIGENT IN THE PERFORMANCE OF HIS DUTIES; PRUDENCE REQUIRED THAT HE, AS THE PILOT IN COMMAND, SHOULD HAVE MADE SURE THAT HIS DIRECTIONS WERE PROMPTLY FOLLOWED. — We affirm respondent court's finding that Capt. Gavino failed to measure up to such strict standard of care and diligence required of pilots in the performance of their duties. It is disconcertingly riddled with too much incertitude and manifests a seeming indifference for the possibly injurious consequences his commands as pilot may have. Prudence required that he, as pilot, should have made sure that his directions were promptly and strictly followed. As correctly noted by the trial court — Moreover, assuming that he did indeed give the command to drop the anchor on time, as pilot he should have seen to it that the order was carried out, and he could have done this in a number of ways, one of which was to inspect the bow of the vessel where the anchor mechanism was installed. Of course, Captain Gavino makes reference to a commotion among the crew members which supposedly caused the delay in the execution of the command. This account was reflected in the pilot's report prepared four hours later, but Capt. Kavankov, while not admitting whether or not such a commotion occurred, maintained that the command to drop anchor was followed "immediately and precisely." Hence, the Court cannot give much weight or consideration to this portion of Gavino's testimony. An act may be negligent if it is done without the competence that a reasonable person in the position of the actor would recognize as necessary to prevent it from creating an unreasonable risk of harm to another. Those who undertake any work calling for special skills are required not only to exercise reasonable care in what they do but also possess a standard minimum of special knowledge and ability. Every man who offers his services to another, and is employed, assumed to exercise in the employment such skills he possess, with a reasonable degree of diligence. In all these employments where peculiar skill is requisite, if one offers his services he is understood as holding himself out to the public as possessing the degree of skill commonly possessed by others in the same employment, and if his pretensions are unfounded he commits a species of fraud on every man who employs him in reliance on his public profession. Furthermore, there is an obligation on all persons to take the care which, under ordinary circumstances of the case, a reasonable and prudent man would take, and the omission of that care constitutes negligence. Generally, the degree of care required is graduated according to the danger a person or property attendant upon the activity which the actor pursues or the instrumentality which he uses. The greater the danger the greater the degree of care required. What is ordinary under extraordinary of conditions is dictated by those conditions; extraordinary risk demands extraordinary care. Similarly, the more imminent the danger, the higher the degree of care.

3.ID.; ID.; ID.; THE COURT OF APPEALS PROPERLY APPLIED THE CLEAR AND UNEQUIVOCAL PROVISIONS THEREOF IN HOLDING THE MANILA PILOTS ASSOCIATION JOINTLY AND SOLIDARILY LIABLE WITH ITS MEMBER PILOT. — No reliance can be placed by MPA on the cited American rulings as to immunity from liability of a pilots' association in light of existing positive regulation under Philippine law. The Court of Appeals properly applied the clear and unequivocal provisions of Customs Administrative Order No. 15-65. In doing so, it was just being consistent with its finding of the non-existence of employer-employee relationship between MPA and Capt. Gavino which precludes the application of Article 2180 of the Civil Code. True, Customs Administrative Order No. 15-65 does not categorically characterize or label MPA's liability as solidary in nature. Nevertheless, a careful reading and proper analysis of the correlated provisions lead to the conclusion that MPA is solidarily liable for the negligence of its member pilots, without prejudice to subsequent reimbursement from the pilot at fault. Article 1207 of the Civil Code provides that there is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. Plainly, Customs Administrative Order No. 15-65 which as an implementing rule has the force and effect of law, can validly provide for solidary liability.

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4.ID.; ID.; ID.; ID.; MASTER OF THE VESSEL LIKEWISE FOUND LIABLE WITH THE COMPULSORY PILOT FOR NEGLIGENCE; HE FAILED TO ACT WHEN THE PERILOUS SITUATION SHOULD HAVE SPURRED HIM INTO QUICK AND DECISIVE ACTION AS THE MASTER OF THE SHIP. — Where a compulsory pilot is in charge of a ship, the master being required to permit him to navigate it, if the master observes that the pilot is incompetent or physically incapable, then it is the duty of the master to refuse to permit the pilot to act. But if no such reasons are present, then the master is justified in relying upon the pilot, but not blindly. Under the circumstances of this case, if a situation arose where the master, exercising that reasonable vigilance which the master of a ship should exercise, observed, or should have observed, that the pilot was so navigating the vessel that she was going, or was likely to go, into danger, and there was in the exercise of reasonable care and vigilance an opportunity for the master to intervene so as to save the ship from danger, the master should have acted accordingly. The master of a vessel must exercise a degree of vigilance commensurate with the circumstances. Inasmuch as the matter of negligence is a question of fact, we defer to the findings of the trial court, especially as this is affirmed by the Court of Appeals. But even beyond that, our own evaluation is that Capt. Kabankov's shared liability is due mainly to the fact that he failed to act when the perilous situation should have spurred him into quick and decisive action as master of the ship. In the face of imminent or actual danger, he did not have to wait for the happenstance to occur before countermanding or overruling the pilot. By his own admission, Capt. Kabankov concurred with Capt. Gavino's decisions, and this is precisely the reason why he decided not to countermand any of the latter's orders. Inasmuch as both lower courts found Capt. Gavino negligent, by expressing full agreement therewith Capt. Kabankov was just as negligent as Capt. Gavino. TIEHSA

D E C I S I O N

REGALADO, J p:

These consolidated petitions for review on certiorari seek in unison to annul and set aside the decision 1 of respondent Court of Appeals of November 15, 1996 and its resolution 2 dated July 31, 1997 in CA-G.R. CV No. 24072, entitled "Philippine Ports Authority, Plaintiff-Appellee vs. Far Eastern Shipping Company, Senen C. Gavino and Manila Pilots' Association, Defendants-Appellants," which affirmed with modification the judgment of the trial court holding the defendants-appellants therein solidarily liable for damages in favor of herein private respondent.

There is no dispute about the facts as found by the appellate court, thus —

. . . On June 20, 1980, the M/V PAVLODAR, flying under the flagship of the USSR, owned and operated by the Far Eastern Shipping Company (FESC for brevity's sake), arrived at the Port of Manila from Vancouver, British Columbia at about 7:00 o'clock in the morning. The vessel was assigned Berth 4 of the Manila International Port, as its berthing space. Captain Roberto Abellana was tasked by the Philippine Port Authority to supervise the berthing of the vessel. Appellant Senen Gavino was assigned by the Appellant Manila Pilots' Association (MPA for brevity's sake) to conduct docking maneuvers for the safe berthing of the vessel to Berth No. 4.

Gavino boarded the vessel at the quarantine anchorage and stationed himself in the bridge, with the master of the vessel, Victor Kavankov, beside him. After a briefing of Gavino by Kavankov of the particulars of the vessel and its cargo, the vessel lifted anchor from the quarantine anchorage and proceeded to the Manila International Port. The sea was calm and the wind was ideal for docking maneuvers.

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When the vessel reached the landmark (the big church by the Tondo North Harbor) one-half mile from the pier, Gavino ordered the engine stopped. When the vessel was already about 2,000 feet from the pier, Gavino ordered the anchor dropped. Kavankov relayed the orders to the crew of the vessel on the bow. The left anchor, with two (2) shackles, were dropped. However, the anchor did not take hold as expected. The speed of the vessel did not slacken. A commotion ensued between the crew members. A brief conference ensued between Kavankov and the crew members. When Gavino inquired what was all the commotion about, Kavankov assured Gavino that there was nothing to it.

After Gavino noticed that the anchor did not take hold, he ordered the engines half-astern. Abellana, who was then on the pier apron noticed that the vessel was approaching the pier fast. Kavankov likewise noticed that the anchor did not take hold. Gavino thereafter gave the "full-astern" code. Before the right anchor and additional shackles could be dropped, the bow of the vessel rammed into the apron of the pier causing considerable damage to the pier. The vessel sustained damage too. (Exhibit "7- Far Eastern Shipping"). Kavankov filed his sea protest (Exhibit "1-Vessel"). Gavino submitted his report to the Chief Pilot (Exhibit "1 -Pilot ") who referred the report to the Philippine Ports Authority (Exhibit "2-Pilot"). Abellana likewise submitted his report of the incident (Exhibit "B ").

Per contract and supplemental contract of the Philippine Ports Authority and the contractor for the rehabilitation of the damaged pier, the same cost the Philippine Ports Authority the amount of P1,126,132.25 (Exhibits "D" and "E"). 3

On January 10, 1983, the Philippine Ports Authority (PPA, for brevity), through the Solicitor General, filed before the Regional Trial Court of Manila, Branch 39, a complaint for a sum of money against Far Eastern Shipping Co., Capt. Senen C. Gavino and the Manila Pilots' Association, docketed as Civil Case No. 83-14958, 4praying that the defendants therein be held jointly and severally liable to pay the plaintiff actual and exemplary damages plus costs of suit. In a decision dated August 1, 1985, the trial court ordered the defendants therein jointly and severally to pay the PPA the amount of P1,053,300.00 representing actual damages and the costs of suit. 5

The defendants appealed to the Court of Appeals and raised the following issues: (1) Is the pilot of a commercial vessel, under compulsory pilotage, solely liable for the damage caused by the vessel to the pier, at the port of destination, for his negligence? and (2) Would the owner of the vessel be liable likewise if the damage is caused by the concurrent negligence of the master of the vessel and the pilot under a compulsory pilotage?

As stated at the outset, respondent appellate court affirmed the findings of the court a quo except that it found no employer-employee relationship existing between herein private respondents Manila Pilots' Association (MPA, for short) and Capt. Gavino. 6 This being so, it ruled instead that the liability of MPA is anchored, not on Article 2180 of the Civil Code, but on the provisions of Customs Administrative Order No, 15-65, 7 and accordingly modified said decision of the trial court by holding MPA, along with its co-defendants therein, still solidarily liable to PPA but entitled MPA to reimbursement from Capt. Gavino for such amount of the adjudged pecuniary liability in excess of the amount equivalent to seventy-five percent (75%) of its prescribed reserve fund. 8

Neither Far Eastern Shipping Co. (briefly, FESC) nor MPA was happy with the decision of the Court of Appeals and both of them elevated their respective plaints to us via separate petitions for review on certiorari. LexLib

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In G.R. No. 130068, which was assigned to the Second Division of this Court, FESC imputed that the Court of Appeals seriously erred:

1.in not holding Senen C. Gavino and the Manila Pilots' Association as the parties solely responsible for the resulting damages sustained by the pier deliberately ignoring the established jurisprudence on the matter;

2.in holding that the master had not exercised the required diligence demanded from him by the circumstances at the time the incident happened;

3.in affirming the amount of damages sustained by the respondent Philippine Ports Authority despite a strong and convincing evidence that the amount is clearly exorbitant and unreasonable;

4.in not awarding any amount of counterclaim prayed for by the petitioner in its answer; and

5.in not granting herein petitioner's claim against pilot Senen C. Gavino and Manila Pilots' Association in the event that it be held liable. 9

Petitioner asserts that since the MV PAVLODAR was under compulsory pilotage at the time of the incident, it was the compulsory pilot, Capt. Gavino, who was in command and had complete control in the navigation and docking of the vessel. It is the pilot who supersedes the master for the time being in the command and navigation of a ship and his orders must be obeyed in all respects connected with her navigation. Consequently, he was solely responsible for the damage caused upon the pier apron, and not the owners of the vessel. It claims that the master of the boat did not commit any act of negligence when he failed to countermand or overrule the orders of the pilot because he did not see any justifiable reason to do so. In other words, the master cannot be faulted for relying absolutely on the competence of the compulsory pilot. If the master does not observe that a compulsory pilot is incompetent or physically incapacitated, the master is justified in relying on the pilot. 10

Respondent PPA, in its comment, predictably in full agreement with the ruling of respondent court on the solidary liability of FESC, MPA and Capt. Gavino, stresses the concurrent negligence of Capt. Gavino, the harbor pilot, and Capt. Viktor Kabankov. * shipmaster of MV Pavlodar, as the basis of their solidary liability for damages sustained by PPA. It posits that the vessel was being piloted by Capt. Gavino with Capt. Kabankov beside him all the while on the bridge of the vessel, as the former took over the helm of MV Pavlodar when it rammed and damaged the apron of the pier of Berth No. 4 of the Manila International Port. Their concurrent negligence was the immediate and proximate cause of the collision between the vessel and the pier — Capt. Gavino, for his negligence in the conduct of docking maneuvers for the safe berthing of the vessel; and Capt. Kabankov, for failing to countermand the orders of the harbor pilot and to take over and steer the vessel himself in the face of imminent danger, as well as for merely relying on Capt. Gavino during the berthing procedure. 11

On the other hand, in G.R. No. 130150, originally assigned to the Court's First Division and later transferred to the Third Division, MPA, now as petitioner in this case, avers that respondent court's errors consisted in disregarding and misinterpreting Customs Administrative Order No. 15-65 which limits the liability of MPA. Said pilots' association asseverates that it should not be held solidarily liable with Capt. Gavino who, as held by respondent court, is only a member, not an employee, thereof. There being no employer-employee relationship, neither can MPA be held liable for any vicarious liability for the respective exercise of profession by its members nor be considered a joint tortfeasor as to be held jointly and severally liable. 12 It further argues that there was erroneous reliance on Customs Administrative Order No. 15-65 and the constitution

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and by-laws of MPA, instead of the provisions of the Civil Code on damages which, being a substantive law, is higher in category than the aforesaid constitution and by-laws of a professional organization or an administrative order which bears no provision classifying the nature of the liability of MPA for the negligence its member pilots. 13

As for Capt. Gavino, counsel for MPA states that the former had retired from active pilotage services since July 28, 1994 and has ceased to be a member of petitioner pilots' association. He is not joined as a petitioner in this case since his whereabouts are unknown. 14

FESC' s comment thereto relied on the competence of the Court of Appeals in construing provisions of law or administrative orders as bases for ascertaining the liability of MPA, and expressed full accord with the appellate court's holding of solidary liability among itself. MPA and Capt. Gavino. It further avers that the disputed provisions of Customs Administrative Order No. 15-65 clearly established MPA's solidary liability. 15

On the other hand, public respondent PPA, likewise through representations by the Solicitor General, assumes the same supportive stance it took in G.R. No. 130068in declaring its total accord with the ruling of the Court of Appeals that MPA is solidarily liable with Capt. Gavino and FESC for damages, and in its application to the fullest extent of the provisions of Customs Administrative Order No. 15-65 in relation to MPA's constitution and by-laws which spell out the conditions of and govern their respective liabilities. These provisions are clear and unambiguous as regards MPA's liability without need for interpretation or construction. Although Customs Administrative Order No. 15-65 is a mere regulation issued by an administrative agency pursuant to delegated legislative authority to fix details to implement the law, it is legally binding and has the same statutory force as any valid statute. 16

Upon motion 17 by FESC dated April 24, 1998 in G.R. No. 130150, said case was consolidated with G.R. No. 130068. 18

Prefatorily, on matters of compliance with procedural requirements, it must be mentioned that the conduct of the respective counsel for FESC and PPA leaves much to be desired, to the displeasure and disappointment of this Court.

Section 2, Rule 42 of the 1997 Rules of Civil Procedure 19 incorporates the former Circular No. 28-91 which provided for what has come to be known as the certification against forum shopping as an additional requisite for petitions filed with the Supreme Court and the Court of Appeals, aside from the other requirements contained in pertinent provisions of the Rules of Court therefor, with the end in view of preventing the filing of multiple complaints involving the same issues in the Supreme Court, Court of Appeals or different divisions thereof or any other tribunal or agency.

More particularly, the second paragraph of Section 2, Rule 42 provides:

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The petitioner shall also submit together with the petition a certification under oath that he has not theretofore commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or different divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he must state the status of the same; and if he should thereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals or different divisions thereof, or any other tribunal or agency, he undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five (5) days therefrom. (Emphasis ours.)

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For petitions for review filed before the Supreme Court, Section 4(e), Rule 45 specifically requires that such petition shall contain a sworn certification against forum shopping as provided in the last paragraph of section 2, Rule 42.

The records show that the law firm of Del Rosario and Del Rosario through its associate, Atty. Herbert A. Tria, is the counsel of record for FESC in both G.R. No.130068 and G.R. No. 130150.

G.R. No. 130068, which is assigned to the Court's Second Division, commenced with the filing by FESC through counsel on August 22, 1997 of a verified motion for extension of time to file its petition for thirty (30) days from August 28, 1997 or until September 27, 1997. 20 Said motion contained the following certification against forum shopping 21 signed by Atty. Herbert A. Tria as affiant:

CERTIFICATIONAGAINST FORUM SHOPPING

I/we hereby certify that I/we have not commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency; that to the best of my own knowledge, no such action or proceeding is pending in the Supreme Court, the Court of Appeals, or any other tribunal or agency; that if I/we should thereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or any other tribunal or agency, I/we undertake to report that fact within five (5) days therefrom to this Honorable Court. prLL

This motion having been granted, FESC subsequently filed its petition on September 26, 1997, this time bearing a "verification and certification against forum-shopping" executed by one Teodoro P. Lopez on September 24, 1997, 22 to wit:

VERIFICATION AND CERTIFICATION

AGAINST FORUM SHOPPING

in compliance with Section 4(e), Rule 45 in relation to Section 2, Rule 42 of the Revised Rules of Civil Procedure

I, Teodoro P. Lopez, of legal age, after being duly sworn, depose and state:

1.That I am the Manager, Claims Department of Filsov Shipping Company, the local agent of petitioner in this case.

2.That I have caused the preparation of this Petition for Review on Certiorari.

3.That I have read the same and the allegations therein contained are true and correct based on the records of this case.

4.That I certify that petitioner has not commenced any other action or proceeding involving the same issues in the Supreme Court or Court of Appeals, or any other tribunal or agency, that to the best of my own knowledge, no such action or proceeding is pending in the Supreme Court, the Court of Appeals or any other tribunal or agency, that if I should thereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or any other tribunal or agency, I undertake to report the fact within five (5) days therefrom to this Honorable Court. (emphasis supplied for emphasis.)

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Reviewing the records, we find that the petition filed by MPA in G.R. No. 130150 then pending with the Third Division was duly filed on August 29, 1997 with a copy thereof furnished on the same date by registered mail to counsel for FESC. 23 Counsel of record for MPA, Atty. Jesus P. Amparo, in his verification accompanying said petition dutifully revealed to the Court that —

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3.Petitioner has not commenced any other action or proceeding involving the same issues in this Honorable Court, the Court of Appeals or different Divisions thereof, or any other tribunal or agency, but to the best of his knowledge, there is an action or proceeding pending in this Honorable Court, entitled Far Eastern Shipping Co., Petitioner, vs. Philippine Ports Authority and Court of Appeals with a Motion for Extension of time to file Petition For Review by Certiorari filed sometime on August 18, 1987. If undersigned counsel will come to know of any other pending action or claim filed or pending he undertakes to report such fact within five (5) days of this Honorable Court. 24 (Emphasis supplied.)

Inasmuch as MPA's petition in G.R. No. 130150 was posted by registered mail on August 29, 1997 and taking judicial notice of the average period of time it takes local mail to reach its destination, by reasonable estimation it would be fair to conclude that when FESC filed its petition in G.R. No. 130068 on September 26, 1997, it would already have received a copy of the former and would then have knowledge of the pendency of the other petition initially filed with the First Division. It was therefore incumbent upon FESC to inform the Court of that fact through its certification against forum shopping. For failure to make such disclosure, it would appear that the aforequoted certification accompanying the petition in G.R. No. 130068 is defective and could have been a ground for dismissal thereof.

Even assuming that FESC had not yet received its copy of MPA's petition at the time it filed its own petition and executed said certification, its signatory did state "that if I should thereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals or any other tribunal or agency, I undertake to report the fact within five (5) days therefrom to this Honorable Court." 25 Scouring the records page by page in this case, we find that no manifestation concordant with such undertaking was then or at any other time thereafter ever filed by FESC nor was there any attempt to bring such matter to the attention of the Court. Moreover, it cannot feign non-knowledge of the existence of such other petition because FESC itself filed the motion for consolidation in G.R. No. 130150 of these two cases on April 24, 1998.

It is disturbing to note that counsel for FESC, the law firm of Del Rosario and Del Rosario, displays an unprofessional tendency of taking the Rules for granted, in this instance exemplified by its pro forma compliance therewith but apparently without full comprehension of and with less than faithful commitment to its undertakings to this Court in the interest of just, speedy and orderly administration of court proceedings.

As between the lawyer and the courts, a lawyer owes candor, fairness and good faith to the court. 26 He is an officer of the court exercising a privilege which is indispensable in the administration of justice. 27 Candidness, especially towards the courts, is essential for the expeditious administration of justice. Courts are entitled to expect only complete honesty from lawyers appearing and pleading before them. 28 Candor in all dealings is the very essence of honorable membership in the legal profession. 29 More specifically, a lawyer is obliged to observe the rules of procedure and not to misuse them to defeat the ends of justice. 30 It behooves a lawyer, therefore, to exert every effort and consider it his duty to assist in the speedy and efficient administration of justice. 31 Being an officer of the court, a lawyer has a responsibility in the proper administration of justice. Like the court itself, he is an instrument to advance its ends — the speedy, efficient, impartial, correct and inexpensive adjudication of cases and the prompt

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satisfaction of final judgments. A lawyer should not only help attain these objectives but should likewise avoid any unethical or improper practices that impede, obstruct or prevent their realization, charged as he is with the primary task of assisting in the speedy and efficient administration of justice. 32

Sad to say, the members of said law firm sorely failed to observe their duties as responsible members of the Bar. Their actuations are indicative of their predisposition to take lightly the avowed duties of officers of the Court to promote respect for law and for legal processes. 33 We cannot allow this state of things to pass judicial muster. LLjur

In view of the fact that at around the time these petitions were commenced, the 1997 Rules of Civil Procedure had just taken effect, the Court treated infractions of the new Rules then with relative liberality in evaluating full compliance therewith. Nevertheless, it would do well to remind all concerned that the penal provisions ofCircular No. 28-91 which remain operative provides, inter alia:

3.Penalties. —

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(c)The submission of a false certification under Par. 2 of the Circular shall likewise constitute contempt of court, without prejudice to the filing of criminal action against the guilty party. The lawyer may also be subjected to disciplinary proceedings.

It must be stressed that the certification against forum shopping ordained under the Rules is to be executed by the petitioner, and not by counsel. Obviously it is the petitioner, and not always the counsel whose professional services have been retained for a particular case, who is in the best position to know whether he or it actually filed or caused the filing of a petition in that case. Hence, a certification against forum shopping by counsel is a defective certification. It is clearly equivalent to non-compliance with the requirement under Section 2, Rule 42 in relation to Section 4, Rule 45, and constitutes a valid cause for dismissal of the petition.

Hence, the initial certification appended to the motion for extension of time to file petition in G.R. No. 130068 executed in behalf of FESC by Atty. Tria is procedurally deficient. But considering that it was a superfluity at that stage of the proceeding, it being unnecessary to file such a certification with a mere motion for extension, we shall disregard such error. Besides, the certification subsequently executed by Teodoro P. Lopez in behalf of FESC cures that defect to a certain extent, despite the inaccuracies earlier pointed out. In the same vein, we shall consider the verification signed in behalf of MPA by its counsel, Atty. Amparo, in G.R. No. 130150 as substantial compliance inasmuch as it served the purpose of the Rules of informing the Court of the pendency of another action or proceeding involving the same issues.

It bears stressing that procedural rules are instruments in the speedy and efficient administration of justice. They should be used to achieve such end and not to derail it. 34

Counsel for PPA did not make matters any better. Despite the fact that, save for the Solicitor General at the time, the same legal team of the Office of the Solicitor General (OSG, for short) composed of Assistant Solicitor General Roman G. Del Rosario and Solicitor Luis F. Simon, with the addition of Assistant Solicitor General Pio C. Guerrero very much later in the proceedings, represented PPA throughout the appellate proceedings in both G.R. No. 130068 and G.R. No. 130150 and was presumably fully acquainted with the facts and issues of the case, it took the OSG an inordinately and almost unreasonably long period of time to file its comment, thus

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unduly delaying the resolution of these cases. It took several changes of leadership in the OSG — from Silvestre H. Bello III to Romeo C. dela Cruz and, finally, Ricardo P. Galvez — before the comment in behalf of PPA was finally filed.

In G.R. No. 130068, it took eight (8) motions for extension of time totaling 210 days, a warning that no further extensions shall be granted, and personal service on the Solicitor General himself of the resolution requiring the filing of such comment before the OSG indulged the Court with the long required comment on July 10, 1998. 35 This, despite the fact that said office was required to file its comment way back on November 12, 1997. 36 A closer scrutiny of the records likewise indicates that petitioner FESC was not even furnished a copy of said comment as required by Section 5, Rule 42. Instead, a copy thereof was inadvertently furnished to MPA which, from the point of view of G.R. No. 130068, was a non-party. 37 The OSG fared slightly better in G.R. No. 130150 in that it took only six (6) extensions, or a total of 180 days, before the comment was finally filed. 38 And while it properly furnished petitioner MPA with a copy of its comment, it would have been more desirable and expedient in this case to have furnished its therein co-respondent FESC with a copy thereof, if only as a matter of professional courtesy. 39

This undeniably dilatory disinclination of the OSG to seasonably file required pleadings constitutes deplorable disservice to the tax-paying public and can only be categorized as censurable inefficiency on the part of the government law office. This is most certainly professionally unbecoming of the OSG.

Another thing that baffles the Court is why the OSG did not take the initiative of filing a motion for consolidation in either G.R. No. 130068 or G.R. No. 130150, considering its familiarity with the background of the case and if only to make its job easier by having to prepare and file only one comment. It could not have been unaware of the pendency of one or the other petition because, being counsel for respondent in both cases, petitioner is required to furnish it with a copy of the petition under pain of dismissal of the petition for failure otherwise. 40

Besides, in G.R. No. 130068. it prefaces its discussions thus —

Incidentally, the Manila Pilots' Association (MPA), one of the defendants-appellants in the case before the respondent Court of Appeals, has taken a separate appeal from the said decision to this Honorable Court, which was docketed as G.R. No. 130150 and entitled "Manila Pilots' Association, Petitioner, versus Philippine Ports Authority and Far Eastern Shipping Co., Respondents. 41

Similarly, in G.R. No. 130150, it states —

Incidentally, respondent Far Eastern Shipping Co. (FESC) had also taken an appeal from the said decision to this Honorable Court, docketed as G.R. No.130068, entitled "Far Eastern Shipping Co. vs. Court of Appeals and Philippine Ports Authority." 42

We find here a lackadaisical attitude and complacency on the part of the OSG in the handling of its cases and an almost reflexive propensity to move for countless extensions, as if to test the patience of the Court, before favoring it with the timely submission of required pleadings.

It must be emphasized that the Court can resolve cases only as fast as the respective parties in a case file the necessary pleadings. The OSG, by needlessly extending the pendency of these cases through its numerous motions for extension, came very close to exhausting this Court's forbearance and has regrettably fallen short of its duties as the People's Tribune.

The OSG is reminded that just like other members of the Bar, the canons under the Code of Professional Responsibility apply with equal force on lawyers in government service in the

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discharge of their official tasks. 43 These ethical duties are rendered even more exacting as to them because, as government counsel, they have the added duty to abide by the policy of the State to promote a high standard of ethics in public service. 44 Furthermore, it is incumbent upon the OSG, as part of the government bureaucracy, to perform and discharge its duties with the highest degree of professionalism, intelligence and skill 45 and to extend prompt, courteous and adequate service to the public. 46

Now, on the merits of the case. After a judicious examination of the records of this case, the pleadings filed, and the evidence presented by the parties in the two petitions, we find no cogent reason to reverse and set aside the questioned decision. While not entirely a case of first impression, we shall discuss the issues seriatimand, correlatively by way of a judicial once-over, inasmuch as the matters raised in both petitions beg for validation and updating of well-worn maritime jurisprudence. Thereby, we shall write finis to the endless finger-pointing in this shipping mishap which has been stretched beyond the limits of judicial tolerance.

The Port of Manila is within the Manila Pilotage District which is under compulsory pilotage pursuant to Section 8, Article III of Philippine Ports Authority Administrative Order No. 03-85, 47 which provides that:

SEC. 8.Compulsory Pilotage Service. — For entering a harbor and anchoring thereat, or passing through rivers or straits within a pilotage district, as well as docking and undocking at any pier/wharf, or shifting from one berth or another, every vessel engaged in coastwise and foreign trade shall be under compulsory pilotage. . . .

In case of compulsory pilotage, the respective duties and responsibilities of the compulsory pilot and the master have been specified by the same regulation in this wise:

SEC. 11.Control of vessels and liability for damage. — On compulsory pilotage grounds, the Harbor Pilot providing the service to a vessel shall be responsible for the damage caused to a vessel or to life and property at ports due to his negligence or fault. He can only be absolved from liability if the accident is caused by force majeure or natural calamities provided he has exercised prudence and extra diligence to prevent or minimize damage.

The Master shall retain overall command of the vessel even on pilotage grounds whereby he can countermand or overrule the order or command of the Harbor Pilot on board. In such event, any damage caused to a vessel or to life and property at ports by reason of the fault or negligence of the Master shall be the responsibility and liability of the registered owner of the vessel concerned without prejudice to recourse against said Master.

Such liability of the owner or Master of the vessel or its pilots shall be determined by competent authority in appropriate proceedings in the light of the facts and circumstances of each particular case.

SEC. 32.Duties and responsibilities of the Pilot or Pilots' Association. — The duties and responsibilities of the Harbor Pilot shall be as follows:

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f)a pilot shall be held responsible for the direction of a vessel from the time he assumes his work as a pilot thereof until he leaves it anchored or berthed safely; Provided, however, that his responsibility shall cease at the moment the Master neglects or refuses to carry out his order.

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Customs Administrative Order No. 15-65 issued twenty years earlier likewise provided in Chapter I thereof for the responsibilities of pilots:

Par. XXXIX. — A Pilot shall be held responsible for the direction of a vessel from the time he assumes control thereof until he leaves it anchored free from shoal; Provided, That his responsibility shall cease at the moment the master neglects or refuses to carry out his instructions. prLL

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Par. XLIV. — Pilots shall properly and safely secure or anchor vessels under their control when requested to do so by the master of such vessels.

I. G.R. No. 130068

Petitioner FESC faults the respondent court with serious error in not holding MPA and Capt. Gavino solely responsible for the damages caused to the pier. It avers that since the vessel was under compulsory pilotage at the time with Capt. Gavino in command and having exclusive control of the vessel during the docking maneuvers, then the latter should be responsible for damages caused to the pier. 48 It likewise holds the appellate court in error for holding that the master of the ship, Capt. Kabankov, did not exercise the required diligence demanded by the circumstances. 49

We start our discussion of the successive issues bearing in mind the evidentiary rule in American jurisprudence that there is a presumption of fault against a moving vessel that strikes a stationary object such as a dock or navigational aid. In admiralty, this presumption does more than merely require the ship to go forward and produce some evidence on the presumptive matter. The moving vessel must show that it was without fault or that the collision was occasioned by the fault of the stationary object or was the result of inevitable accident. It has been held that such vessel must exhaust every reasonable possibility which the circumstances admit and show that in each, they did all that reasonable care required. 50 In the absence of sufficient proof in rebuttal, the presumption of fault attaches to a moving vessel which collides with a fixed object and makes a prima facie case of fault against the vessel. 51 Logic and experience support this presumption:

The common sense behind the rule makes the burden a heavy one. Such accidents simply do not occur in the ordinary course of things unless the vessel has been mismanaged in some way. It is not sufficient for the respondent to produce witnesses who testify that as soon as the danger became apparent everything possible was done to avoid an accident. The question remains, How then did the collision occur? The answer must be either that, in spite of the testimony of the witnesses, what was done was too little or too late or, if not, then the vessel was at fault for being in a position in which an unavoidable collision would occur. 52

The task, therefore, in these cases is to pinpoint who was negligent the master of the ship, the harbor pilot or both.

A pilot, in maritime law, is a person duly qualified, and licensed, to conduct a vessel into or out of ports, or in certain waters. In a broad sense, the term "pilot" includes both (1) those whose duty it is to guide vessels into or out of ports, or in particular waters and (2) those entrusted with the navigation of vessels on the high seas. 53 However, the term "pilot" is more generally understood as a person taken on board at a particular place for the purpose of conducting a ship through a river, road or channel, or from a port. 54

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Under English and American authorities, generally speaking, the pilot supersedes the master for the time being in the command and navigation of the ship, and his orders must be obeyed in all matters connected with her navigation. He becomes the master pro hac vice and should give all directions as to speed, course, stopping and reversing, anchoring, towing and the like. And when a licensed pilot is employed in a place where pilotage is compulsory, it is his duty to insist on having effective control of the vessel, or to decline to act as pilot. Under certain systems of foreign law, the pilot does not take entire charge of the vessel, but is deemed merely the adviser of the master, who retains command and control of the navigation even in localities where pilotage is compulsory. 55

It is quite common for states and localities to provide for compulsory pilotage, and safety laws have been enacted requiring vessels approaching their ports, with certain exceptions, to take on board pilots duly licensed under local law. The purpose of these laws is to create a body of seamen thoroughly acquainted with the harbor, to pilot vessels seeking to enter or depart, and thus protect life and property from the dangers of navigation. 56

In line with such established doctrines, Chapter II of Customs Administrative Order No. 15-65 prescribes the rules for compulsory pilotage in the covered pilotage districts, among which is the Manila Pilotage District, viz. —

PARAGRAPH I. — Pilotage for entering a harbor and anchoring thereat, as well as docking and undocking in any pier or shifting from one berth to another shall be compulsory, except Government vessels and vessels of foreign governments entitled to courtesy, and other vessels engaged solely in river or harbor work, or in a daily ferry service between ports which shall be exempt from compulsory pilotage provisions of these regulations; provided, however, that compulsory pilotage shall not apply in pilotage districts whose optional pilotage is allowed under these regulations.

Pursuant thereto, Capt. Gavino was assigned to pilot MV Pavlodar into Berth 4 of the Manila International Port. Upon assuming such office as compulsory pilot, Capt. Gavino is held to the universally accepted high standards of care and diligence required of a pilot, whereby he assumes to have skill and knowledge in respect to navigation in the particular waters over which his license extends superior to and more to be trusted than that of the master. 57 A pilot should have a thorough knowledge of general and local regulations and physical conditions affecting the vessel in his charge and the waters for which he is licensed, such as a particular harbor or river. He is not held to the highest possible degree of skill and care, but must have and exercise the ordinary skill and care demanded by the circumstances, and usually shown by an expert in his profession. Under extraordinary circumstances, a pilot must exercise extraordinary care. 58

In Atlee vs. The Northwestern Union Packet Company, 59 Mr. Justice Miller spelled out in great detail the duties of a pilot:

. . . (T)he pilot of a river steamer, like the harbor pilot, is selected for his personal knowledge of the topography through which he steers his vessel. In the long course of a thousand miles in one of these rivers, he must be familiar with the appearance of the shore on each side of the river as he goes along. Its banks, towns, its landings, its houses and trees, are all landmarks by which he steers his vessel. The compass is of little use to him. He must know where the navigable channel is, in its relation to all these external objects, especially in the night. He must also be familiar with all dangers that are permanently located in the course of the river, as sand-bars, snags, sunken rocks or trees or abandoned vessels or barges. All this he must know and remember and avoid. To do this, he must be constantly informed of the changes in the current of the river, of the sand-bars newly made, of logs or snags, or other objects newly presented, against which his vessel might be injured.

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It may be said that this is exacting a very high order of ability in a pilot. But when we consider the value of the lives and property committed to their control, for in this they are absolute masters, the high compensation they receive, the care which Congress has taken to secure by rigid and frequent examinations and renewal of licenses, this very class of skill, we do not think we fix the standard too high.

Tested thereby, we affirm respondent court's finding that Capt. Gavino failed to measure up to such strict standard of care and diligence required of pilots in the performance of their duties. Witness this testimony of Capt. Gavino:

Court:

You have testified before that the reason why the vessel bumped the pier was because the anchor was not released immediately or as soon as you have given the order. Do you remember having stated that?

AYes, your Honor.

QAnd you gave this order to the captain of the vessel?

AYes, your Honor.

QBy that testimony, you are leading the Court to understand that if that anchor was released immediately at the time you gave the order, the incident would not have happened. Is that correct?

AYes, sir, but actually it was only a presumption on my part because there was a commotion between the officers who are in charge of the dropping of the anchor and the captain. I could not understand their language, it was in Russian, so I presumed the anchor was not dropped on time.

QSo, you are not sure whether it was really dropped on time or not?

AI am not sure, your Honor.

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QYou are not even sure what could have caused the incident. What factor could have caused the incident?

AWell, in this case now, because either the anchor was not dropped on time or the anchor did not hold, that was the cause of the incident, your Honor. 60

It is disconcertingly riddled with too much incertitude and manifests a seeming indifference for the possibly injurious consequences his commands as pilot may have. Prudence required that he, as pilot, should have made sure that his directions were promptly and strictly followed. As correctly noted by the trial court —

Moreover, assuming that he did indeed give the command to drop the anchor on time, as pilot he should have seen to it that the order was carried out, and he could have done this in a number of ways, one of which was to inspect the bow of the vessel where the anchor mechanism was installed. Of course, Captain Gavino makes reference to a commotion among the crew members which supposedly caused the delay in the execution of the command. This account was reflected in the pilot's report prepared four hours later, but

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Capt. Kavankov, while not admitting whether or not such a commotion occurred, maintained that the command to drop anchor was followed "immediately and precisely." Hence, the Court cannot give much weight or consideration to this portion of Gavino's testimony." 61

An act may be negligent if it is done without the competence that a reasonable person in the position of the actor would recognize as necessary to prevent it from creating an unreasonable risk of harm to another. 62 Those who undertake any work calling for special skills are required not only to exercise reasonable care in what they do but also possess a standard minimum of special knowledge and ability. 63

Every man who offers his services to another, and is employed, assumes to exercise in the employment such skills he possesses, with a reasonable degree of diligence. In all these employments where peculiar skill is requisite, if one offers his services he is understood as holding himself out to the public as possessing the degree of skill commonly possessed by others in the same employment, and if his pretensions are unfounded he commits a species of fraud on every man who employs him in reliance on his public profession. 64 cdphil

Furthermore, there is an obligation on all persons to take the care which, under ordinary circumstances of the case, a reasonable and prudent man would take, and the omission of that care constitutes negligence. 65 Generally, the degree of care required is graduated according to the danger a person or property attendant upon the activity which the actor pursues or the instrumentality which he uses. The greater the danger the greater the degree of care required. What is ordinary under extraordinary of conditions is dictated by those conditions; extraordinary risk demands extraordinary care. Similarly, the more imminent the danger, the higher the degree of care. 66

We give our imprimatur to the bases for the conclusion of the Court of Appeals that Capt. Gavino was indeed negligent in the performance of his duties:

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. . . As can be gleaned from the logbook, Gavino ordered the left anchor and two (2) shackles dropped at 8:30 o'clock in the morning. He ordered the engines of the vessel stopped at 8:31 o'clock. By then, Gavino must have realized that the anchor did not hit a hard object and was not clawed so as to reduce the momentum of the vessel. In point of fact, the vessel continued travelling towards the pier at the same speed. Gavino failed to react. At 8:32 o'clock, the two (2) tugboats began to push the stern part of the vessel from the port side but the momentum of the vessel was not contained. Still, Gavino did not react. He did not even order the other anchor and two (2) more shackles dropped to arrest the momentum of the vessel. Neither did he order full-astern. It was only at 8:34 o'clock, or four (4) minutes, after the anchor was dropped that Gavino reacted. But his reaction was even (haphazard) because instead of arresting fully the momentum of the vessel with the help of the tugboats, Gavino ordered merely "half-astern". It took Gavino another minute to order a "full-astern". By then, it was too late. The vessel's momentum could no longer be arrested and, barely a minute thereafter, the bow of the vessel hit the apron of the pier. Patently, Gavino miscalculated. He failed to react and undertake adequate measures to arrest fully the momentum of the vessel after the anchor failed to claw to the seabed. When he reacted, the same was even (haphazard). Gavino failed to reckon the bulk of the vessel, its size and its cargo. He erroneously believed that only one (1) anchor would suffice and even when the anchor failed to claw into the seabed or against a hard object in the seabed, Gavino failed to order the other anchor dropped immediately. His claim that the anchor was dropped when the vessel was only 1,000 feet from the pier is but a belated attempt to extricate himself from the quagmire of his own insouciance and

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negligence. In sum, then, Appellants' claim that the incident was caused by "force majeure" is barren of factual basis.

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The harbor pilots are especially trained for this job. In the Philippines, one may not be a harbor pilot unless he passed the required examination and training conducted then by the Bureau of Custom, under Customs Administrative Order No. 15-65, now under the Philippine Ports Authority under PPA Administrative Order 63-85. Paragraph XXXIX of the Customs Administrative Order No. 15-65 provides that "the pilot shall be held responsible for the direction of the vessel from the time he assumes control thereof, until he leaves it anchored free from shoal: Provided, that his responsibility shall cease at the moment the master neglects or refuse(s) to carry out his instructions." The overall direction regarding the procedure for docking and undocking the vessel emanates from the harbor pilot. In the present recourse, Gavino failed to live up to his responsibilities and exercise reasonable care or that degree of care required by the exigencies of the occasion. Failure on his part to exercise the degree of care demanded by the circumstances is negligence (Reese versus Philadelphia & RR Co.239 US 463, 60 L ed. 384, 57 Am Jur. 2d page 418). 67

This affirms the findings of the trial court regarding Capt. Gavino's negligence:

This discussion should not however, divert the court from the fact that negligence in maneuvering the vessel must be attributed to Capt. Senen Gavino. He was an experienced pilot and by this time should have long familiarized himself with the depth of the port and the distance he could keep between the vessel and port in order to berth safely. 68

The negligence on the part of Capt. Gavino is evident; but Capt. Kabankov is no less responsible for the collision. His unconcerned lethargy as master of the ship in the face of troublous exigence constitutes negligence.

While it is indubitable that in exercising his functions a pilot is in sole command of the ship 69 and supersedes the master for the time being in the command and navigation of a ship and that he becomes master pro hac vice of a vessel piloted by him, 70 there is overwhelming authority to the effect that the master does not surrender his vessel to the pilot and the pilot is not the master. The master is still in command of the vessel notwithstanding the presence of a pilot. There are occasions when the master may and should interfere and even displace the pilot, as when the pilot is obviously incompetent or intoxicated and the circumstances may require the master to displace a compulsory pilot because of incompetency or physical incapacity. If, however, the master does not observe that a compulsory pilot is incompetent or physically incapacitated, the master is justified in relying on the pilot, but not blindly. 71 cdphil

The master is not wholly absolved from his duties while a pilot is on board his vessel, and may advise with or offer suggestions to him. He is still in command of the vessel, except so far as her navigation is concerned, and must cause the ordinary work of the vessel to be properly carried on and the usual precaution taken. Thus, in particular, he is bound to see that there is sufficient watch on deck, and that the men are attentive to their duties, also that engines are stopped, towlines cast off, and the anchors clear and ready to go at the pilot's order. 72

A perusal of Capt. Kabankov' s testimony makes it apparent that he was remiss in the discharge of his duties as master of the ship leaving the entire docking procedure up to the pilot, instead of maintaining watchful vigilance over this risky maneuver:

QWill you please tell us whether you have the right to intervene in docking of your ship in the harbor?

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ANo sir, I have no right to intervene in time of docking, only in case there is imminent danger to the vessel and to the pier.

QDid you ever intervene during the time that your ship was being docked by Capt. Gavino'?

ANo sir, I did not intervene at the time when the pilot was docking my ship.

QUp to the time it was actually docked at the pier, is that correct?

ANo sir, I did not intervene up to the very moment when the vessel was docked.

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Atty. Del Rosario (to the witness)

QMr. Witness, what happened, if any, or was there anything unusual that happened during the docking?

AYes sir, our ship touched the pier and the pier was damaged .

Court (to the witness)

QWhen you said touched the pier, are you leading the court to understand that your ship bumped the pier'?

AI believe that my vessel only touched the pier but the impact was very weak.

QDo you know whether the pier was damaged as a result of that slight or weak impact?

AYes sir, after the pier was damaged.

xxx xxx xxx

QBeing most concerned with the safety of your vessel, in the maneuvering of your vessel to the port, did you observe anything irregular in the maneuvering by Capt. Gavino at the time he was trying to cause the vessel to be docked at the pier?

AYou mean the action of Capt. Gavino or his condition?

Court:

QNot the actuation that conform to the safety maneuver of the ship to the harbor?

ANo sir, it was a usual docking.

QBy that statement of yours, you are leading the court to understand that there was nothing irregular in the docking of the ship?

AYes sir, during the initial period of the docking. there was nothing unusual that happened.

QWhat about in the last portion of the docking of the ship, was there anything unusual or abnormal that happened?

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ANone Your Honor, I believe that Capt. Gavino thought that the anchor could keep or hold the vessel.

QYou want us to understand, Mr. Witness, that the dropping of the anchor of the vessel was not timely'?

AI don't know the depth of this port but I think, if the anchor was dropped earlier and with more shackles, there could not have been an incident.

QSo you could not precisely tell the court that the dropping of the anchor was timely because you are not well aware of the seabed, is that correct?

AYes sir, that is right.

xxx xxx xxx

QAlright, Capt. Kavankov, did you come to know later whether the anchor held its ground so much so that the vessel could not travel?

AIt is difficult for me to say definitely. I believe that the anchor did not hold the ship.

QYou mean you don't know whether the anchor blades stuck to the ground to stop the ship from further moving ?

AYes sir, it is possible.

QWhat is possible'?

AI think, the 2 shackles were not enough to hold the vessel.

QDid you know that the 2 shackles were dropped?

AYes sir, I knew that.

QIf you knew that the shackles were not enough to hold the ship, did you not make any protest to the pilot?

ANo sir, after the incident, that was my assumption.

QDid you come to know later whether that presumption is correct?

AI still don't know the ground in the harbor or the depths.

QSo from the beginning, you were not competent whether the 2 shackles were also dropped to hold the ship?

ANo sir, at the beginning, I did not doubt it because I believe Capt. Gavino to be an experienced pilot and he should be more aware as to the depths of the harbor and the ground and I was confident in his actions.

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Solicitor Abad (to the witness)

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QNow, you were standing with the pilot on the bridge of the vessel before the incident happened, were you not?

AYes sir, all the time, I was standing with the pilot.

QAnd so whatever the pilot saw, you could also see from that point of view?

AThat is right.

QWhatever the pilot can read from the panel of the bridge, you also could read, is that correct'?

AWhat is the meaning of panel?

QAll indications necessary for men on the bridge to be informed of the movements of the ship?

AThat is right.

QAnd whatever sound the captain . . . Capt. Gavino would hear from the bridge, you could also hear?

AThat is right.

QNow, you said that when the command to lower the anchor was given, it was obeyed, is that right?

AThis command was executed by the third mate and boatswain.

Court (to the witness)

QMr. Witness, earlier in today's hearing, you said that you did not intervene with the duties of the pilot and that, in your opinion, you can only intervene if the ship is placed in imminent danger, is that correct?

AThat is right, I did say that.

QIn your observation before the incident actually happened, did you observe whether or not the ship, before the actual incident, the ship was placed in imminent danger?

ANo sir, I did not observe.

QBy that answer, are you leading the court to understand that because you did not intervene and because you believed that it was your duty to intervene when the vessel is placed in imminent danger to which you did not observe any imminent danger thereof, you have not intervened in any manner to the command of the pilot?

AThat is right, sir.

xxx xxx xxx

QAssuming that you disagreed with the pilot regarding the step being taken by the pilot in maneuvering the vessel, whose command will prevail, in case of imminent danger to the vessel?

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AI did not consider the situation as having an imminent danger. I believed that the vessel will dock alongside the pier.

QYou want us to understand that you did not see an imminent danger to your ship, is that what you mean?

AYes sir, up to the very last moment, I believed that there was no imminent danger.

QBecause of that, did you ever intervene in the command of the pilot?

AYes sir, I did not intervene because I believed that the command of the pilot to be correct.

Solicitor Abad (to the witness)

QAs a captain of M/V Pavlodar, you consider docking maneuvers a serious matter, is it not?

AYes sir, that is right. prcd

QSince it affects not only the safety of the port or pier, but also the safety of the vessel and the cargo, is it not?

AThat is right.

QSo that, I assume that you were watching Capt. Gavino very closely at the time he was making his commands ?

AI was close to him, I was hearing his command and being executed.

QAnd that you were also alert for any possible mistakes he might commit in the maneuvering of the vessel?

AYes sir, that is right.

QBut at no time during the maneuver did you issue order contrary to the orders Capt. Gavino made?

ANo sir.

QSo that you were in full accord with all of Capt. Gavino' s orders?

AYes sir.

QBecause, otherwise, you would have issued order that would supersede his own order?

AIn that case, I should take him away from his command or remove the command from him.

Court (to the witness)

QYou were in full accord with the steps being taken by Capt. Gavino because you relied on his knowledge, on his familiarity of the seabed and shoals and other surroundings or conditions under the sea, is that correct?

AYes sir, that is right.

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Solicitor Abad (to the witness)

QAnd so after the anchors were ordered dropped and they did not take hold of the seabed, you were alerted that there was danger already on hand?

ANo sir, there was no imminent danger to the vessel.

QDo you mean to tell us that even if the anchor was supposed to take hold of the bottom and it did not, there was no danger to the ship?

AYes sir, because the anchor dragged on the ground later .

QAnd after a few moments when the anchor should have taken hold the seabed but not done (sic), as you expected, you already were alerted that there was danger to the ship, is that correct?

AYes sir, I was alerted but there was no danger.

QAnd you were alerted that somebody was wrong?

AYes sir, I was alerted.

QAnd this alert you assumed was the ordinary alertness that you have for normal docking?

AYes sir, I mean that it was usual condition of any man in time of docking to be alert.

QAnd that is the same alertness when the anchor did not hold onto the ground, is that correct?

AYes sir, me and Capt. Gavino (thought) that the anchor will hold the ground.

QSince, as you said that you agreed all the while with the orders of Capt. Gavino, you also therefore agreed with him in his failure to take necessary precaution against the eventuality that the anchor will not hold as expected?

Atty. Del Rosario:

May I ask that the question ...

Solicitor Abad:

Never mind, I will reform the question.

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Solicitor Abad (to the witness)

QIs it not a fact that the vessel bumped the pier?

AThat is right, it bumped the pier.

QFor the main reason that the anchor of the vessel did not hold the ground as expected?

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AYes sir, that is my opinion." 73

Further, on redirect examination, Capt. Kabankov fortified his apathetic assessment of the situation:

QNow, after the anchor was dropped, was there any point in time that you felt that the vessel was in imminent danger.

ANo, at that time, the vessel was not in imminent danger, sir." 74

This cavalier appraisal of the event by Capt. Kabankov is disturbingly antipodal to Capt. Gavino's anxious assessment of the situation:

QWhen a pilot is on board a vessel, it is the pilot's command which should be followed at that moment until the vessel is, or goes to port or reaches port?

AYes, your Honor, but it does not take away from the Captain his prerogative to countermand the pilot.

QIn what way'?

AIn any case, which he thinks the pilot is not maneuvering correctly, the Captain always has the prerogative to countermand the pilot's order.

QBut insofar as competence, efficiency and functional knowledge of the seabed which are vital or decisive in the safety (sic) bringing of a vessel to the port, he is not competent?

AYes, your Honor. That is why they hire a pilot in an advisory capacity, but still, the safety of the vessel rest(s) upon the Captain, the Master of the vessel.

QIn this case, there was not a disagreement between you and the Captain of the vessel in the bringing of the vessel to port?

ANo, your Honor.

Court:

May proceed.

Atty. Catris:

In fact, the Master of the vessel testified here that he was all along in conformity with the orders you gave to him, and, as matter of fact, as he said, he obeyed all your orders. Can you tell, if in the course of giving such normal orders for the saf(e) docking of the MV Pavlodar, do you remember of any instance that the Master of the vessel did not obey your command for the safety docking of the MV Pavlodar?

Atty. del Rosario:

Already answered, he already said yes sir.

Court:

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Yes, he has just answered yes sir to the Court that there was no disagreement insofar as the bringing of the vessel safely to the port.

Atty. Catris:

But in this instance of docking of the MV Pavlodar, do you remember of a time during the course of the docking that the MV Pavlodar was in imminent danger of bumping the pier?

AWhen we were about more than one thousand meters from the pier, I think, the anchor was not holding, so I immediately ordered to push the bow at a fourth quarter, at the back of the vessel in order to swing the bow away from the pier and at the same time, I ordered for a full astern of the engine." 75

These conflicting reactions can only imply, at the very least, unmindful disregard or, worse, neglectful relinquishment of duty by the shipmaster, tantamount to negligence.

The findings of the trial court on this aspect is noteworthy:

For, while the pilot Gavino may indeed have been charged with the task of docking the vessel in the berthing space, it is undisputed that the master of the vessel had the corresponding duty to countermand any of the orders made by the pilot, and even maneuver the vessel himself, in case of imminent danger to the vessel and the port.

In fact, in his testimony, Capt. Kavankov admitted that all throughout the man(eu)vering procedures he did not notice anything was going wrong, and even observed that the order given to drop the anchor was done at the proper time. He even ventured the opinion that the accident occurred because the anchor failed to take hold but that this did not alarm him because there was still time to drop a second anchor.

Under normal circumstances, the abovementioned facts would have caused the master of a vessel to take charge of the situation and see to the man(eu)vering of the vessel himself. Instead, Capt. Kavankov chose to rely blindly upon his pilot, who by this time was proven ill-equipped to cope with the situation.

xxx xxx xxx

It is apparent that Gavino was negligent but Far Eastern's employee Capt. Kavankov was no less responsible for as master of the vessel he stood by the pilot during the man(eu)vering procedures and was privy to every move the latter made, as well as the vessel's response to each of the commands. His choice to rely blindly upon the pilot's skills, to the point that despite being appraised of a notice of alert he continued to relinquish control of the vessel to Gavino, shows indubitably that he was not performing his duties with the diligence required of him and therefore may be charged with negligence along with defendant Gavino." 76 prcd

As correctly affirmed by the Court of Appeals —

We are in full accord with the findings and disquisitions of the Court a quo.

In the present recourse, Captain Viktor Kavankov had been a mariner for thirty-two years before the incident. When Gavino was (in) the command of the vessel, Kavankov was beside Gavino, relaying the commands or orders of Gavino to the crew members-officers of the vessel concerned. He was thus fully aware of the docking maneuvers and procedure Gavino undertook to dock the vessel. Irrefragably, Kavankov was fully aware of the bulk

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and size of the vessel and its cargo as well as the weight of the vessel. Kavankov categorically admitted that, when the anchor and two (2) shackles were dropped to the sea floor, the claws of the anchor did not hitch on to any hard object in the seabed. The momentum of the vessel was not arrested. The use of the two (2) tugboats was insufficient. The momentum of the vessel, although a little bit arrested, continued (sic) the vessel going straightforward with its bow towards the port (Exhibit"A-1"). There was thus a need for the vessel to move "full-astern" and to drop the other anchor with another shackle or two (2), for the vessel to avoid hitting the pier. Kavankov refused to act even as Gavino failed to act. Even as Gavino gave mere "half-astern" order, Kavankov supinely stood by. The vessel was already about twenty (20) meters away from the pier when Gavino gave the 'full-astern" order. Even then, Kavankov did nothing to prevent the vessel from hitting the pier simply because he relied on the competence and plan of Gavino.

While the "full-astern" maneuver momentarily arrested the momentum of the vessel, it was, by then, too late. All along, Kavankov stood supinely beside Gavino, doing nothing but relay the commands of Gavino. Inscrutably, then, Kavankov was negligent.

xxx xxx xxx

The stark incompetence of Kavankov is competent evidence to prove the unseaworthiness of the vessel. It has been held that the incompetence of the navigator, the master of the vessel or its crew makes the vessel unseaworthy (Tug Ocean Prince versus United States of America, 584 F.2nd, page 1151). Hence, the Appellant FESC is likewise liable for the damage sustained by the Appellee." 77

We find strong and well-reasoned support in time-tested American maritime jurisprudence, on which much of our laws and jurisprudence on the matter are based, for the conclusions of the Court of Appeals adjudging both Capt. Gavino and Capt. Kabankov negligent.

As early as 1869, the U.S. Supreme Court declared, through Mr. Justice Swayne, in The Steamship China vs. Walsh, 78 that it is the duty of the master to interfere in cases of the pilot's intoxication or manifest incapacity, in cases of danger which he does not foresee, and in all cases of great necessity. The master has the same power to displace the pilot that he has to remove any subordinate officer of the vessel, at his discretion.

In 1895, the U.S. Supreme Court, this time through Mr. Justice Brown, emphatically ruled that:

Nor are we satisfied with the conduct of the master in leaving the pilot in sole charge of the vessel. While the pilot doubtless supersedes the master for the time being in the command and navigation of the ship, and his orders must be obeyed in all matters connected with her navigation, the master is not wholly absolved from his duties while the pilot is on board, and may advise with him, and even displace him in case he is intoxicated or manifestly incompetent. He is still in command of the vessel, except so far as her navigation is concerned, and bound to see that there is a sufficient watch on deck, and that the men are attentive to their duties.

. . . (N)otwithstanding the pilot has charge, it is the duty of the master to prevent accident, and not to abandon the vessel entirely to the pilot; but that there are certain duties he has to discharge (notwithstanding there is a pilot on board) for the benefit of the owners. . . . that in well conducted ships the master does not regard the presence of a duly licensed pilot in compulsory pilot waters as freeing him from every obligation to attend to the safety of the vessel; but that, while the master sees that his officers and crew duly attend to the pilot's orders, he himself is bound to keep a vigilant eye on the navigation of the vessel, and, when exceptional circumstances exist, not only to urge upon the pilot to use every precaution, but to insist upon such being taken." 79 (Italics for emphasis.)

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In Jure vs. United Fruit Co., 80 which, like the present petitions, involved compulsory pilotage, with a similar scenario where at and prior to the time of injury, the vessel was in the charge of a pilot with the master on the bridge of the vessel beside said pilot, the court therein ruled:

The authority of the master of a vessel is not in complete abeyance while a pilot, who is required by law to be accepted, is in discharge of his functions. . . . It is the duty of the master to interfere in cases of the pilot's intoxication or manifest incapacity, in cases of danger which he does not foresee, and in all cases of great necessity. The master has the same power to displace the pilot that he has to remove any subordinate officer of the vessel. He may exercise it, or not, according to his discretion. There was evidence to support findings that plaintiff's injury was due to the negligent operation of the Atenas, and that the master of that vessel was negligent in failing to take action to avoid endangering a vessel situated as the City of Canton was and persons or property thereon.

A phase of the evidence furnished support for the inferences . . . that he negligently failed to suggest to the pilot the danger which was disclosed, and means of avoiding such danger; and that the master's negligence in failing to give timely admonition to the pilot proximately contributed to the injury complained of. We are of opinion that the evidence mentioned tended to prove conduct of the pilot, known to the master, giving rise to a case of danger or great necessity, calling for the intervention of the master. A master of a vessel is not without fault in acquiescing in conduct of a pilot which involves apparent and avoidable danger, whether such danger is to the vessel upon which the pilot is, or to another vessel, or persons or property thereon or on shore. (Emphasis ours.)

Still in another case involving a nearly identical setting, the captain of a vessel alongside the compulsory pilot was deemed to be negligent, since, in the words of the court, "he was in a position to exercise his superior authority if he had deemed the speed excessive on the occasion in question. I think it was clearly negligent of him not to have recognized the danger to any craft moored at Gravell Dock and that he should have directed the pilot to reduce his speed as required by the local governmental regulations. His failure amounted to negligence and renders the respondent liable. 81 (Stress supplied.) Though a compulsory pilot might be regarded as an independent contractor, he is at all times subject to the ultimate control of the ship's master 82

In sum, where a compulsory pilot is in charge of a ship, the master being required to permit him to navigate it, if the master observes that the pilot is incompetent or physically incapable, then it is the duty of the master to refuse to permit the pilot to act. But if no such reasons are present, then the master is justified in relying upon the pilot, but not blindly. Under the circumstances of this case, if a situation arose where the master, exercising that reasonable vigilance which the master of a ship should exercise, observed, or should have observed, that the pilot was so navigating the vessel that she was going, or was likely to go, into danger, and there was in the exercise of reasonable care and vigilance an opportunity for the master to intervene so as to save the ship from danger, the master should have acted accordingly. 83 The master of a vessel must exercise a degree of vigilance commensurate with the circumstances. 84

Inasmuch as the matter of negligence is a question of fact, 85 we defer to the findings of the trial court, especially as this is affirmed by the Court of Appeals. 86 But even beyond that, our own evaluation is that Capt. Kabankov's shared liability is due mainly to the fact that he failed to act when the perilous situation should have spurred him into quick and decisive action as master of the ship. In the face of imminent or actual danger, he did not have to wait for the happenstance to occur before countermanding or overruling the pilot. By his own admission, Capt. Kabankov concurred with Capt. Gavino's decisions, and this is precisely the reason why he decided not to countermand any of the latter' s orders. Inasmuch as both lower courts found Capt. Gavino negligent, by expressing full agreement therewith Capt. Kabankov was just as negligent as Capt. Gavino.

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In general, a pilot is personally liable for damages caused by his own negligence or default to the owners of the vessel, and to third parties for damages sustained in a collision. Such negligence of the pilot in the performance of duty constitutes a maritime tort. 87 At common law, a shipowner is not liable for injuries inflictedexclusively by the negligence of a pilot accepted by a vessel compulsorily. 88 The exemption from liability for such negligence shall apply if the pilot is actually in charge and solely in fault. Since, a pilot is responsible only for his own personal negligence, he cannot be held accountable for damages proximately caused by the default of others, 89 or, if there be anything which concurred with the fault of the pilot in producing the accident, the vessel master and owners are liable.

Since the colliding vessel is prima facie responsible, the burden of proof is upon the party claiming benefit of the exemption from liability. It must be shown affirmatively that the pilot was at fault, and that there was no fault on the part of the officers or crew, which might have been conducive to the damage. The fact that the law compelled the master to take the pilot does not exonerate the vessel from liability. The parties who suffer are entitled to have their remedy against the vessel that occasioned the damage, and are not under necessity to look to the pilot from whom redress is not always had for compensation. The owners of the vessel are responsible to the injured party for the acts of the pilot, and they must be left to recover the amount as well as they can against him. It cannot be maintained that the circumstance of having a pilot on board, and acting in conformity to his directions operate as a discharge of responsibility of the owners. 90 Except insofar as their liability is limited or exempted by statute, the vessel or her owner are liable for all damages caused by the negligence or other wrongs of the owners or those in charge of the vessel. Where the pilot of a vessel is not a compulsory one in the sense that the owner or master of the vessel are bound to accept him, but is employed voluntarily, the owners of the vessel are, all the more, liable for his negligent act. 91

In the United States, the owners of a vessel are not personally liable for the negligent acts of a compulsory pilot, but by admiralty law, the fault or negligence of a compulsory pilot is imputable to the vessel and it may be held liable therefor in rem. Where, however, by the provisions of the statute the pilot is compulsory only in the sense that his fee must be paid, and is not in compulsory charge of the vessel, there is no exemption from liability. Even though the pilot is compulsory, if his negligence was not the sole cause of the injury, but the negligence of the master or crew contributed thereto, the owners are liable. 92 But the liability of the ship in rem does not release the pilot from the consequences of his own negligence. 93 The rationale for this rule is that the master is not entirely absolved of responsibility with respect to navigation when a compulsory pilot is in charge. 94

By way of validation and in light of the aforecited guidepost rulings in American maritime cases, we declare that our rulings during the early years of this century inCity of Manila vs. Gambe, 95 China Navigation Co., Ltd. vs. Vidal, 96 and Yap Tico & Co. vs. Anderson, et al. 97 have withstood the proverbial test of time and remain good and relevant case law to this day.

City of Manila stands for the doctrine that the pilot who was in command and complete control of a vessel, and not the owners, must be held responsible for an accident which was solely the result of the mistake of the pilot in not giving proper orders, and which did not result from the failure of the owners to equip the vessel with the most modern and improved machinery. In China Navigation Co., the pilot deviated from the ordinary and safe course, without heeding the warnings of the ship captain. It was this careless deviation that caused the vessel to collide with a pinnacle rock which, though uncharted, was known to pilots and local navigators. Obviously, the captain was blameless. It was the negligence of the pilot alone which was the proximate cause of the collision. The Court could not but then rule that —

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The pilot in the case at bar having deviated from the usual and ordinary course followed by navigators in passing through the strait in question, without a substantial reason, was guilty of negligence, and that negligence having been the proximate cause of the damages, he is liable for such damages as usually and naturally flow therefrom. . . . llcd

. . . (T)he defendant should have known of the existence and location of the rock upon which the vessel struck while under his control and management.. . .

Consistent with the pronouncements in these two earlier cases, but on a slightly different tack, the Court in Yap Tico & Co. exonerated the pilot from liability for the accident where the orders of the pilot in the handling of the ship were disregarded by the officers and crew of the ship. According to the Court, a pilot is ". . . responsible for a full knowledge of the channel and the navigation only so far as he can accomplish it through the officers and crew of the ship, and I don't see that he can be held responsible for damage when the evidence shows, as it does in this case, that the officers and crew of the ship failed to obey his orders." Nonetheless, it is possible for a compulsory pilot and the master of the vessel to be concurrently negligent and thus share the blame for the resulting damage as joint tortfeasors, 98but only under the circumstances obtaining in and demonstrated by the instant petitions.

It may be said, as a general rule, that negligence in order to render a person liable need not be the sole cause of an injury. It is sufficient that his negligence, concurring with one or more efficient causes other than plaintiff's, is the proximate cause of the injury. Accordingly, where several causes combine to produce injuries, person is not relieved from liability because he is responsible for only one of them, it being sufficient that the negligence of the person charged with injury is an efficient cause without which the injury would not have resulted to as great an extent, and that such cause is not attributable to the person injured. It is no defense to one of the concurrent tortfeasors that the injury would not have resulted from his negligence alone, without the negligence or wrongful acts of the other concurrent tortfeasor. 99 Where several causes producing an injury are concurrent and each is an efficient cause without which the injury would not have happened, the injury may be attributed to all or any of the causes and recovery may be had against any or all of the responsible persons although under the circumstances of the case, it may appear that one of them was more culpable, and that the duty owed by them to the injured person was not the same. No actor's negligence ceases to be a proximate cause merely because it does not exceed the negligence of other actors. Each wrongdoer is responsible for the entire result and is liable as though his acts were the sole cause of the injury. 100

There is no contribution between joint tortfeasors whose liability is solidary since both of them are liable for the total damage. Where the concurrent or successive negligent acts or omissions of two or more persons, although acting independently, are in combination the direct and proximate cause of a single injury to a third person, it is impossible to determine in what proportion each contributed to the injury and either of them is responsible for the whole injury. Where their concurring negligence resulted in injury or damage to a third party, they become joint tortfeasors and are solidarily liable for the resulting damage under Article 2194 101 of the Civil Code. 102

As for the amount of damages awarded by the trial court, we find the same to be reasonable. The testimony of Mr. Pascual Barral, witness for PPA, on cross and redirect examination, appears to be grounded on practical considerations:

QSo that the cost of the two additional piles as well as the (two) square meters is already included in this P1,300,999.77.

AYes sir, everything. It is (the) final cost already.

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QFor the eight piles.

AIncluding the reduced areas and other reductions.

Q(A)nd the two square meters.

AYes sir.

QIn other words, this P1,300,999.77 does not represent only for the six piles that was damaged as well as the corresponding two piles.

AThe area was corresponding, was increased by almost two in the actual payment. That was why the contract was decreased, the real amount was P1,124,627.40 and the final one is P1,300,999.77.

QYes, but that P1,300,999.77 included the additional two new posts.

AIt was increased.

QWhy was it increased?

AThe original was 48 and the actual was 46.

QNow, the damage was somewhere in 1980. It took place in 1980 and you started the repair and reconstruction in 1982, that took almost two years?

AYes sir.

QMay it not happen that by natural factors, the existing damage in 1980 was aggravated for the 2 year period that the damage portion was not repaired?

AI don't think so because that area was at once marked and no vehicles can park, it was closed.

QEven if or even natural elements cannot affect the damage ?

ACannot, sir.

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QYou said in the cross-examination that there were six piles damaged by the accident, but that in the reconstruction of the pier, PPA drove and constructed 8 piles. Will you explain to us why there was change in the number of piles from the original number?

AIn piers where the piles are withdrawn or pulled out, you cannot re-drive or drive piles at the same point. You have to redesign the driving of the piles. We cannot drive the piles at the same point where the piles are broken or damaged or pulled out. We have to redesign, and you will note that in the reconstruction, we redesigned such that it necessitated 8 piles.

QWhy not, why could you not drive the same number of piles and on the same spot?

AThe original location was already disturbed. We cannot get required bearing capacity. The area is already disturbed.

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QNonetheless, if you drove the original number of piles, six, on different places, would not that have sustained the same load?

AIt will not suffice, sir." 103

We quote the findings of the lower court with approval:

With regards to the amount of damages that is to be awarded to plaintiff, the Court finds that the amount of P1,053,300.00 is justified. Firstly, the doctrine of res ipsa loquitur best expounded upon in the landmark case of Republic vs. Luzon Stevedoring Corp. (21 SCRA 279) establishes the presumption that in the ordinary course of events the ramming of the dock would not have occurred if proper care was used.

Secondly, the various estimates and plans justify the cost of the port construction price. The new structure constructed not only replaced the damaged one but was built of stronger materials to forestall the possibility of any similar accidents in the future.

The Court inevitably finds that the plaintiff is entitled to an award of P1,053,300.00 which represents actual damages caused by the damage to Berth 4 of the Manila International Port. Co-defendants Far Eastern Shipping, Capt. Senen Gavino and Manila Pilots Association are solidarily liable to pay this amount to plaintiff. 104

The Solicitor General rightly commented that the adjudicated amount of damages represents the proportional cost of repair and rehabilitation of the damaged section of the pier. 105

Except insofar as their liability is limited or exempted by statute, the vessel or her owners are liable for all damages caused by the negligence or other wrongs of the owners or those in charge of the vessel. As a general rule, the owners or those in possession and control of a vessel and the vessel are liable for all natural and proximate damages caused to persons or property by reason of her negligent management or navigation. 106

FESC's imputation of PPA's failure to provide a safe and reliable berthing place is obtuse, not only because it appears to be a mere afterthought, being tardily raised only in this petition, but also because there is no allegation or evidence on record about Berth No. 4 being unsafe and unreliable, although perhaps it is a modest pier by international standards. There was, therefore, no error on the part of the Court of Appeals in dismissing FESC's counterclaim.

II. G.R. No. 130150

This consolidated case treats on whether the Court of Appeals erred in holding MPA jointly and solidarily liable with its member pilot, Capt. Gavino, in the absence of employer-employee relationship and in applying Customs Administrative Order No. 15-65, as basis for the adjudged solidary liability of MPA and Capt. Gavino.

The pertinent provisions in Chapter I of Customs Administrative Order No. 15-65 are:

"PAR. XXVII. — In all pilotage districts where pilotage is compulsory, there shall be created and maintained by the pilots or pilots' association, in the manner hereinafter prescribed, a reserve fund equal to P1,000.00 for each pilot thereof for the purpose of paying claims for damages to vessels or property caused through acts or omissions of its members while rendered in compulsory pilotage service. In Manila, the reserve fund shall be P2,000.00 for each pilot. prcd

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PAR. XXVIII. — A pilots' association shall not be liable under these regulations for damage to any vessel, or other property, resulting from acts of a member of an association in the actual performance of his duty for a greater amount than seventy-five per centum (75 % ) of its prescribed reserve fund; it being understood that if the association is held liable for an amount greater than the amount above-stated, the excess shall be paid by the personal funds of the member concerned.

PAR. XXXI. — If a payment is made from the reserve fund of an association on account of damages caused by a member thereof, and he shall have been found at fault, such member shall reimburse the association in the amount so paid as soon as practicable; and for this purpose, not less than twenty-five per centum of his dividends shall be retained each month until the full amount has been returned to the reserve fund.

PAR. XXXIV. — Nothing in these regulations shall relieve any pilots' association or members thereof, individually or collectively, from civil responsibility for damages to life or property resulting from the acts of members in the performance of their duties.

Correlatively, the relevant provisions of PPA Administrative Order No. 03-85, which timely amended this applicable maritime regulation, state:

Article IV

SEC. 17. Pilots' Association. — The Pilots in a Pilotage District shall organize themselves into a Pilots' Association or firm, the members of which shall promulgate their own By-Laws not in conflict with the rules and regulations promulgated by the Authority. These By-Laws shall be submitted not later than one (1) month after the organization of the Pilots' Association for approval by the General Manager of the Authority. Subsequent amendments thereto shall likewise be submitted for approval.

SEC. 25.Indemnity Insurance and Reserve Fund —

a)Each Pilots' Association shall collectively insure its membership at the rate of P50,000,00 each member to cover in whole or in part any liability arising from any accident resulting in damage to vessel(s), port facilities and other properties and/or injury to persons or death which any member may have caused in the course of his performance of pilotage duties. . . .

b)The Pilotage Association shall likewise set up and maintain a reserve fund which shall answer for any part of the liability referred to in the immediately preceding paragraph which is left unsatisfied by the insurance proceeds, in the following manner:

1)Each pilot in the Association shall contribute from his own account an amount of P4,000.00 (P6,000.00 in the Manila Pilotage District) to the reserve fund. This fund shall not be considered part of the capital of the Association nor charged as an expense thereof.

2)Seventy-five percent (75 % ) of the reserve fund shall be set aside for use in the payment of damages referred to above incurred in the actual performance of pilots' duties and the excess shall be paid from the personal funds of the member concerned.

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5)If payment is made from the reserve fund of an Association on account of damage caused by a member thereof who is found at fault, he shall reimburse the Association in the amount so paid as soon as practicable; and

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for this purpose, not less than twenty-five percentum (25%) of his dividend shall be retained each month until the full amount has been returned to the reserve fund. Thereafter, the pilot involved shall be entitled to his full dividend.

6)When the reimbursement has been completed as prescribed in the preceding paragraph, the ten percentum (10 %) and the interest withheld from the shares of the other pilots in accordance with paragraph (4) hereof shall be returned to them.

c)Liability of Pilots' Association — Nothing in these regulations shall relieve any Pilots' Association or members thereof, individually or collectively, from any civil, administrative and/or criminal responsibility for damages to life or property resulting from the individual acts of its members as well as those of the Association's employees and crew in the performance of their duties.

The Court of Appeals, while affirming the trial court's finding of solidary liability on the part of FESC, MPA and Capt. Gavino, correctly based MPA's liability not on the concept of employer-employee relationship between Capt. Gavino and itself, but on the provisions of Customs Administrative Order No. 15-65:

The Appellant MPA avers that, contrary to the findings and disquisitions of the Court a quo, the Appellant Gavino was not and has never been an employee of the MPA but was only a member thereof. The Court a quo, it is noteworthy, did not state the factual basis on which it anchored its finding that Gavino was the employee of MPA. We are in accord with MPA's pose. Case law teaches Us that, for an employer-employee relationship to exist, the confluence of the following elements must be established: (1) selection and engagement of employees; (2) the payment of wages; (3) the power of dismissal; (4) the employer's power to control the employees with respect to the means and method by which the work is to be performed (Ruga versus NLRC, 181 SCRA 266). cda

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The liability of MPA for damages is not anchored on Article 2180 of the New Civil Code as erroneously found and declared by the Court a quo but under the provisions of Customs Administrative Order No. 15-65, supra, in tandem with the by-laws of the MPA." 107

There being no employer-employee relationship, clearly Article 2180 108 of the Civil Code is inapplicable since there is no vicarious liability of an employer to speak of. It is so stated in American law, as follows:

The well established rule is that pilot associations are immune to vicarious liability for the tort of their members. They are not the employer of their members and exercise no control over them once they take the helm of the vessel. They are also not partnerships because the members do not function as agents for the association or for each other. Pilots' associations are also not liable for negligently assuring the competence of their members because as professional associations they made no guarantee of the professional conduct of their members to the general public. 109

Where under local statutes and regulations, pilot associations lack the necessary legal incidents of responsibility, they have been held not liable for damages caused by the default of a member pilot. 110 Whether or not the members of a pilots' association are in legal effect a co-partnership depends wholly on the powers and duties of the members in relation to one another under the provisions of the governing statutes and regulations. The relation of a pilot to his association is not that of a servant to the master, but of an associate assisting and participating in a common purpose. Ultimately, the rights and liabilities between a pilots' association and an individual

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member depend largely upon the constitution, articles or by-laws of the association, subject to appropriate government regulations. 111

No reliance can be placed by MPA on the cited American rulings as to immunity from liability of a pilots' association in light of existing positive regulation under Philippine law. The Court of Appeals properly applied the clear and unequivocal provisions of Customs Administrative Order No. 15-65. In doing so, it was just being consistent with its finding of the non-existence of employer-employee relationship between MPA and Capt. Gavino which precludes the application of Article 2180 of the Civil Code.

True, Customs Administrative Order No. 15 -65 does not categorically characterize or label MPA's liability as solidary in nature. Nevertheless, a careful reading and proper analysis of the correlated provisions lead to the conclusion that MPA is solidarily liable for the negligence of its member pilots, without prejudice to subsequent reimbursement from the pilot at fault.

Article 1207 of the Civil Code provides that there is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. Plainly, Customs Administrative Order No. 15-65, which as an implementing rule has the force and effect of law, can validly provide for solidary liability. We note the Solicitor General's comment hereon, to wit:

. . . Customs Administrative Order No. 15-65 may be a mere rule and regulation issued by an administrative agency pursuant to a delegated authority to fix "the details" in the execution or enforcement of a policy set out in the law itself. Nonetheless, said administrative order, which adds to the procedural or enforcing provisions of substantive law, is legally binding and receives the same statutory force upon going into effect. In that sense, it has equal, not lower, statutory force and effect as a regular statute passed by the legislature." 112

MPA's prayer for modification of the appellate court's decision under review by exculpating petitioner MPA "from liability beyond seventy-five percent (75 % ) of Reserve Fund" is unnecessary because the liability of MPA under Par. XXVIII of Customs Administrative Order No. 15-65 is in fact limited to seventy-five percent (75%) of its prescribed reserve fund, any amount of liability beyond that being for the personal account of the erring pilot and subject to reimbursement in case of a finding of fault by the member concerned. This is clarified by the Solicitor General:

Moreover, contrary to petitioner's pretensions, the provisions of Customs Administrative Order No. 15-65 do not limit the liability of petitioner as a pilots' association to an absurdly small amount of seventy-five per centum (75%) of the member pilots' contribution of P2,000.00 to the reserve fund. The law speaks of the entire reserve fund required to be maintained by the pilots' association to answer (for) whatever liability arising from the tortious act of its members. And even if the association is held liable for an amount greater than the reserve fund, the association may not resist the liability by claiming to be liable only up to seventy-five per centum (75 %) of the reserve fund because in such instance it has the right to be reimbursed by the offending member pilot for the excess." 113

WHEREFORE, in view of all of the foregoing, the consolidated petitions for review are DENIED and the assailed decision of the Court of Appeals is AFFIRMED in toto.cdrep

Counsel for FESC, the law firm of Del Rosario and Del Rosario specifically its associate, Atty. Herbert A. Tria, is REPRIMANDED and WARNED that a repetition of the same or similar acts of heedless disregard of its undertakings under the Rules shall be dealt with more severely.

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The original members of the legal team of the Office of the Solicitor General assigned to this case, namely, Assistant Solicitor General Roman G. Del Rosario and Solicitor Luis F. Simon, are ADMONISHED and WARNED that a repetition of the same or similar acts of unduly delaying proceedings due to delayed filing of required pleadings shall also be dealt with more stringently.

The Solicitor General is DIRECTED to look into the circumstances of this case and to adopt provident measures to avoid a repetition of this incident and which would ensure prompt compliance with orders of this Court regarding the timely filing of requisite pleadings, in the interest of just, speedy and orderly administration of justice.

Let copies of this decision be spread upon the personal records of the lawyers named herein in the Office of the Bar Confidant.

SO ORDERED.

Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Panganiban, Martinez, Quisumbing, and Purisima, JJ., concur.

Narvasa, C .J ., on official leave.

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